Tracker Mortgages

Tracker mortgage – currently the most popular choice of mortgage (along with fixed rate mortgages), these mortgages are not reliant on the lender’s Standard Variable Rate, but take their cue from the Bank of England Base Rate.

They emerged to counter the habit of some lenders to increase their SVR mortgages – including their discounted deals – by a greater margin than any increase announced by the Bank of England.  Alternatively, some lenders would support only part of any cut announced in the Base Rate. This boosted their profit margins but was unfair to borrowers.

A tracker gives you the full benefit of any cut in the Basic Rate and ensures you only an agreed amount beyond any Basic Rate rise.  Usually, the rate is set at an agreed percentage above the base rate (for example 0.5% above) for a specified tracker period before returning to the fixed or SVR.

Discounted trackers offer some of the lowest rates available, although they tend to last only two years before reverting to the agreed margin above the Base Rate. This means that trackers need to be watched constantly to ensure you are not paying any more than necessary. Some lenders now offer lifetime tracker deals that last for the full term of the mortgage.

Tracker mortgages – pros and cons

PROS:

- Follows the Base Rate up and down, so you are not subject to the whims of the lender.

- If the base rate falls, then your interest payments are reduced.

- There is usually a cap on how much more you will pay above the Base Rate.

- Lifetime trackers are available.

CONS

- If the base rate rises, so do your monthly payments.

- Need careful monitoring to ensure you are not paying over-the-odds as the Base Rate fluctuates over time.

- Some tracker mortgages have a set minimum interest rate: should the base rate fall below this you will not see the benefit

- They revert to a rate above the Base Rate.

- The deal may have early repayment or penalties for switching.