Tracker and variable-rate mortgages

Variable-rate and tracker mortgages follow the Bank of England base rate.  Depending on the deal you have negotiated, your payments will go up and down depending on base rate. Tracker rates are usually advertised as the base rate plus a certain percentage. For example, a 0.5% base rate plus 2.5%.

It’s important to realise with this sort of mortgage that although interest rates have been historically low during recent years at 0.5%, in the past interest rates have been much higher. There are no guarantees about how the Bank of England base rate will move in the future. 

Tracker and variable-rate mortgages are usually available for a fixed time period before going back to the lender’s own standard variable rate (SVR). This SVR is not the same as the base rate. If you decide you want to get out of the mortgage before the stated period ends, you will usually have to pay fees. Your mortgage payments will also change with every change in the base rate.

When interest rates are low, taking a tracker might mean you end up paying less than you would have with a fixed rate. Conversely though, if mortgage rates rise, you could be worse off. Consider your financial situation if interest rates rise when thinking about whether this is the right product for you.

A popular alternative to a tracker or variable-rate mortgage is a capped mortgage, which tracks the base rate until interest rates hit a certain level, but where the rate is guaranteed not to rise above a certain limit. Discount mortgages are also an option, but this is linked to the lender’s own standard variable rate (SVR) not base rate and will be expressed as SVR less 2% or similar. Weigh up all of the options before deciding which type of mortgage is best for you given your circumstances and future plans.  Remember there are independent financial advisors and mortgage brokers who can always help you with questions regarding mortgages.