Why are Tracker Mortgages Becoming so Popular?

Tracker mortgages are a popular choice for borrowers looking for lower initial rates and the potential for savings. Since they follow the Bank of England base rate, any decrease in the base rate will lower your mortgage rate, offering greater transparency and predictability. 

Many people are attracted to tracker mortgages for their shorter tie-in periods, which provide the flexibility to remortgage if interest rates rise or fall. With more homebuyers and remortgagers looking for flexible options in this economic climate, it’s no surprise that tracker mortgages are gaining in popularity. Data from the Financial Conduct Authority (FCA) shows a 67% increase in tracker mortgages from 118,818 in 2021 to 198,044 by the first quarter of 2024. ​

What is a Tracker Mortgage?

A tracker mortgage is a type of variable rate mortgage which tracks a pre-arranged independently set interest rate – usually linked to the Bank of England base rate – for a set period. The term could be between 1 and 5 years, or an open-ended lifetime tracker mortgage. Like all variable rates, they go up and down, depending on movements in the Bank of England base interest rate.

How Do Tracker Mortgages Work?

With this type of variable-rate mortgage, your repayments are linked to the Bank of England base rate, plus an additional percentage set by your mortgage provider.

For example, if the base rate is 5% and your tracker mortgage is set at ‘base rate plus 1%’, your interest would be 6%. If the base rate drops to 4%, your interest will decrease to 5%.

Tracker mortgages typically offer lower interest rates than fixed-rate deals, which lock you into a set rate for a specific period. However, they come with the risk of increasing repayments if the Bank of England raises the base rate.

How Long Do Tracker Mortgage Deals Last?

You can choose a mortgage with an introductory tracker rate for a set amount of time. Tracker mortgage deals typically last for 2 to 5 years, though some lenders offer lifetime tracker mortgages that follow the base rate for the entire loan term.

Once this period ends, your lender will typically move you to their standard variable rate (SVR) or a higher tracker rate. Alternatively, you can switch to a new tracker deal or a fixed-rate mortgage for a better rate.

Some lenders also offer lifetime tracker mortgages, which follow the base rate for the entire mortgage term. However, these can be risky, as predicting long-term base rate changes is difficult. They also tend to have higher interest rates compared to introductory tracker deals.

In some cases, if you don’t remortgage after a fixed-rate period, you may automatically be placed on a tracker mortgage instead of the SVR.

What Are the Advantages of a Tracker Mortgage

Lower Initial Interest Rates – Tracker mortgages often start with lower interest rates than fixed-rate mortgages, making them affordable.

Potential for Savings – If the Bank of England base rate decreases, your mortgage repayments will also reduce, allowing you to benefit from lower borrowing costs.

No Lender Discretion – Unlike standard variable rate (SVR) mortgages, where the lender can change rates at their discretion, tracker mortgages move strictly in line with the base rate.

Shorter Tie-In Periods – Many tracker deals come with shorter commitment periods compared to fixed-rate mortgages, offering more flexibility if you plan to remortgage or move home.

While tracker mortgages offer flexibility and potential savings, they also come with the risk of rising repayments if interest rates increase. Let’s take a look at some of the disadvantages of tracker mortgages. 

What Are the Disadvantages of a Tracker Mortgage?

Rising Payments: tracker mortgages are usually linked to the Bank of England base rate, if this increases, your repayments will rise too. 

Uncertainty: Unlike fixed-rate mortgages, which offer stability, tracker mortgages come with uncertainty. You may experience fluctuations in your monthly payments, making budgeting harder.

Limited Control: You have no control over changes in the base rate. If the Bank of England raises rates, your mortgage payments will increase automatically, which can be challenging if you’re on a tight budget.

Who Typically Gets a Tracker Mortgage?

Tracker mortgages are popular among borrowers who are comfortable with fluctuating interest rates and want the potential to benefit from lower repayments if the Bank of England base rate decreases. Here are some common groups who opt for tracker mortgages:

First-Time Buyers – Some first-time buyers choose tracker mortgages if rates are low, hoping to pay less than a fixed-rate deal in the early years. For help securing a mortgage as a first-time buyer, visit the Bell Financial website. 

Home Movers – Those upgrading or downsizing may choose a tracker mortgage if they expect interest rates to drop, making it a cost-effective option. At Bell Financial, we assist those looking to move home. Get expert mortgage advice from our team today.

Remortgagers – Homeowners switching from a fixed-rate mortgage might opt for a tracker to take advantage of a lower initial rate and potential future savings. If you’re looking to remortgage your home, contact us at Bell Financial and we can help you get a better mortgage rate with access to competitive mortgage rates not on the high street. 

Buy-to-Let Investors – Some landlords prefer tracker mortgages to keep costs lower when interest rates are favorable, though they must be prepared for potential increases. If you are looking to invest in property and need help getting a better mortgage rate, Bell Financial can help you through the process. 

How to Get the Best Tracker Mortgage Deal

To get the best tracker mortgage, follow these steps:

Compare Lenders & Rates – Shop around or use a mortgage broker to find the most competitive tracker deals with the lowest interest rates and fees.

Check the Tracker Margin – The best deals have a low percentage added to the base rate. 

Look for Deals with No Collar Rate – Some lenders set a minimum interest rate (collar rate) that prevents your payments from dropping too low. Avoid this if possible.

Consider Fees & Extra Costs – A low interest rate isn’t always the best deal if there are high arrangement fees, early repayment charges, or exit fees.

Improve Your Credit Score – A higher credit score can help you qualify for better interest rates and more favorable terms.

Save for a Larger Deposit – The more you can put down (e.g., 25% +), the lower your loan-to-value (LTV) ratio, which helps secure better rates.
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Frequently Asked Questions

What is a tracker mortgage?

A tracker mortgage is a variable-rate mortgage where the interest rate follows (or "tracks") the Bank of England base rate, plus a set percentage determined by your lender.

How often does the interest rate change on a tracker mortgage?

Your interest rate changes whenever the Bank of England adjusts its base rate. If the base rate increases, your repayments will rise. If it falls, your repayments will decrease (unless a "collar rate" is in place).

Are tracker mortgages cheaper than fixed-rate mortgages?

Tracker mortgages often start with lower interest rates than fixed-rate deals. However, they come with the risk of rising payments if interest rates go up.

What happens when my tracker mortgage deal ends?

Once your tracker deal ends, you will typically be moved to your lender’s Standard Variable Rate (SVR). At this point, you can remortgage to a new tracker or fixed-rate deal to avoid higher costs.

Can I overpay on a tracker mortgage?

Some tracker mortgages allow overpayments without penalties, while others have restrictions. Check with your lender to see if there are any limits or early repayment charges.

Is a tracker mortgage right for me?

A tracker mortgage may be suitable if:

• You can handle fluctuating monthly payments
• You believe interest rates may stay low or decrease
• You want more flexibility than a fixed-rate mortgage offers

If you prefer predictable payments, a fixed-rate mortgage might be a better choice.

Find the Best Tracker Mortgage for You

If you’re considering a tracker mortgage, our team at Bell Financial Solutions can help you understand the options available and find the best deal for your financial needs. Whether you're a first-time buyer, looking to remortgage, or investing in property, we offer expert advice tailored to your situation. Don’t wait—contact us today to get started on getting the right mortgage for you!

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