What Is a Tracker Mortgage?

A tracker mortgage has an interest rate that is set at a fixed margin above (or occasionally below) the Bank of England base rate. For example, a tracker might be priced at base rate plus 0.75%. If the base rate is 4.5%, your mortgage rate would be 5.25%. If the base rate drops to 4%, your rate automatically falls to 4.75%.

Tracker deals are available for set periods -- commonly two or five years -- or as lifetime trackers that last for the entire mortgage term.

Why it matters

Tracker mortgages offer transparency that other variable rate products do not. Because your rate is directly tied to the base rate, you always know exactly why your payments have changed. Unlike an SVR, which the lender can adjust at their own discretion, a tracker must follow base rate movements precisely.

When the base rate is falling or expected to fall, tracker mortgages can save you significant money compared to a fixed rate. However, the opposite is also true -- if rates rise, your payments increase immediately.

Practical example

On a £200,000 mortgage with a tracker at base rate plus 0.75%, and the base rate at 4.5%, your rate would be 5.25%, costing approximately £1,200 per month on a 25-year repayment basis. A 0.25% base rate cut would reduce your monthly payment by around £30, while a 0.25% rise would add the same amount.

Collar and cap rates

Some tracker mortgages include a collar (a minimum rate your mortgage cannot fall below) or a cap (a maximum rate it cannot exceed). Caps are rare and desirable; collars are more common and limit how much you benefit from rate cuts. Always check the small print.

Important caveats

Tracker mortgages suit borrowers who can absorb potential payment increases and who believe rates will remain stable or fall. If you need payment certainty for budgeting, a fixed rate is usually more appropriate. Some tracker deals come without early repayment charges, offering greater flexibility than fixed rates.

Tracker Mortgage