Tracker mortgages

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 as well as down, depending on movements in the Bank of England base interest rate.

How does a tracker mortgage work?

  • These mortgage rates are a fixed percentage above (usually) the Bank of England base rate, which they ‘track’ for a period that can vary between one and five years. For example, it could be the BoE rate plus 2%. As the BoE (or other independent) rate goes up or down, so does the tracker rate, as well as your repayments.
  • Lenders will have several options for tracker rates, often depending on your credit score, your loan-to-value ratio (how much you can provide as a deposit) and other factors.
  • Longer-term trackers can often have higher margins above the base interest rate.
  • It’s important to note that while lenders usually do pass on cuts in the Bank of England base rate interest, they don’t have to.
  • When the tracker deal is over, you are normally moved to the lender’s standard variable rate, which is usually at a higher rate as it is set by the lender.

What are the benefits of a tracker mortgage?


  • When interest rates fall, your monthly payments and outgoings should fall too.
  • Because it follows the Bank of England base rate, it depends less on the discretion of the lender.
  • If your monthly payments fall, some lenders allow you to keep your payments the same but at a lower rate - which can help you pay off your mortgage more quickly and reduce the amount of interest you pay overall.
  • You can often switch to a fixed rate mortgage deal without an early repayment charge if interest rates go up and you feel you need the stability of a fixed rate.


  • If interest rates go up, your monthly payments and outgoings will go up too.
  • Many lenders now have ‘collar rates’ that stop rates falling too low, meaning you may not benefit from ultra-low interest rates.

What is a collar rate on tracker mortgages?

When interest rates fell rapidly in the early 2010s, some lenders set a bar below which the rate couldn’t fall any lower - called a ‘collar’ rate. So, if the rate that your mortgage is tracking goes below that minimum level, your monthly payments won’t go down any more. For example, let’s say the base rate is 0.25%, and your rate is base + 1.6% but the collar is 2.5% - instead of paying 1.85%, you have to pay 2.5%.

What is a lifetime tracker mortgage?

Lifetime tracker mortgages have no fixed end date, and in theory tracks the Bank of England base rate for the full term of the mortgage. As they have no formal end date, they are usually ‘switch and fix’ type mortgages that enable you to move to a different rate without an exit charge.

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