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Tracker rate mortgage

A tracker rate mortgage is a type of variable rate mortgage. With this mortgage type, the interest element of your monthly repayments can change depending on the Bank of England’s base rate.

If the Bank of England interest base rate falls or rises, your monthly payments for your mortgage will change accordingly. This can be very beneficial for buyers who want flexibility in their repayments, as they are not tied into a fixed interest rate.

About tracker rate mortgages UK

A tracker rate mortgage is like a standard variable rate (SVR) mortgage, in that the amount of interest charged on your loan can change over time. With an SVR mortgage, the lender can set the interest rate they charge at their own discretion.

A tracker rate mortgage will match or ‘track’ the interest element charged on your loan to the current base rate set by the Bank of England. This can be helpful in reducing costs if this amount falls lower than your lender’s current base interest rate.

The interest rate charged can be plus or minus a certain percentage depending on the BoE rate e.g. the Bank of England base rate +1%.

The Bank of England could change its interest base rate for a variety of reasons which can include:

  • To control rising inflation
  • To stabilise the UK economy
  • To react to changes in value of the British Pound Sterling (£)

Although any of these changes will affect your monthly repayments, it is worth noting that tracker rates can work out more cost effective than SVR mortgages.

This is because lenders can raise their own base interest rates when you least expect it. It will be easier to track when the Bank of England could be likely to increase or decrease rates, as this rate is usually reviewed once a month by the Monetary Policy Committee.

For more information about other types of variable rate mortgage deals CLICK HERE.

Best tracker rate mortgage

As this mortgage type will generally follow the same base interest rate no matter the lender, you may need to consider other factors to determine which tracker rate mortgage is the best choice for you.

Consider the length of the mortgage term, how long you will be on the tracker rate for (in some cases you may be switched to your lender’s SVR after a fixed term e.g. 2 years) and whether the lender seems suitable for your needs. It is worth assessing the lender as a whole and whether you are happy to commit to them long term.

With a tracker rate mortgage, you can keep an eye on the Bank of England rates and other economic news to determine whether a price increase seems likely. With other types of variable rates, lenders can change their interest rate for any reason they choose, making them less predictable.

Benefits of tracker rate mortgages

Variable mortgage rates can be an attractive option for a lot of buyers. A tracker rate offers many advantages for those looking to take out a mortgage. These include:

  • Some tracker mortgages will have a set cap that your interest rate cannot rise above, even if the Bank of England rate does (they may also not be able to drop below a set minimum rate, so it is worth checking that with your lender)
  • Easier to predict potential price increases by keeping an eye on the Bank of England’s base rate
  • The possibility for lower monthly repayment costs if the BoE base interest rate falls
  • Some lenders will fix this rate for your full mortgage term or for a shorter fixed term depending on your preferences
  • Can be a lower interest rate than an SVR mortgage depending on the lender
  • If interest rates are low, fixed rate mortgages may work out more expensive
  • Some lenders will allow you to make overpayments to repay the mortgage faster
  • You can avoid fees such as early repayment charges (ERCs) in some cases, which you would likely be tied to on a fixed rate mortgage.

All of the above are great reasons to consider a tracker rate mortgage. It is however sensible to remember that any variable rate mortgage will come with a risk of higher payments if interest rates rise.

If concerned about this possibility, a fixed rate mortgage could be a good choice for you.

It is a good idea to assess all the interest rate options before making any decisions on which mortgage to apply for. If unsure on what options and deals are out there, speak to a specialist mortgage broker for expert advice.

For more information on fixed rate mortgages CLICK HERE.

Mortgage advice for tracker rates

Variable rate mortgages are widely available across the market. This means our team have a wealth of experience in all types of variable rate mortgages – tracker rates included.

We can advise you on the best choice of lenders and the pros and cons of this mortgage type. That then allows you to be fully informed before deciding whether this is the right interest rate type for you.

Our advisors will always strive to match up buyers with the best possible mortgage type and lender for their needs. If you are unsure on which choice is right for you, it is always best to consult with a specialist.

Mortgage specialists for tracker rates

We have years worth of experience of helping buyers find their perfect variable rate mortgage deal. With over 50 top UK lenders on our panel, we can search hundreds of available deals to find the right one for you.

Speak to one of our mortgage experts if you think a tracker rate mortgage may be the right choice for you. We can help you find the best lender no matter the mortgage type, whether buy to let, interest only etc.

Other types of variable rate mortgage

There are several other types of variable rate mortgage available if a discount rate doesn’t seem the right choice for you. The two other types of variable rate are:

  • Standard variable rate: a standard variable rate (SVR) is a common type of variable rate mortgage. The interest rate you pay will change if your lender changes their base interest rate.
  • Discount rate: the lender offers you a discount on their standard variable interest rate charged for your repayments for a set period of time. This will usually be a percentage discount (e.g. a 1% discount would equal paying 2% interest on the loan if the standard rate was 3%).

Useful resources

Bank of England – Interest rates and bank rates

Bank of England – Official bank rate history – Average mortgage interest rates in the UK from March 2000 to August 2022

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