Tracker Mortgages

A tracker mortgage typically ‘tracks’ adjustments in the base rate that is set by the Monetary Policy Committee at the Bank of England. This rate is also referred to as the Bank Rate. The MPC holds a meeting every six weeks or so, announcing any change to the base rate shortly after.

Tracker mortgages have interest rates that are adjusted according to the base rate. The loan taken out to purchase the property in question clearly states the level at which the interest will apply. For example, it might be set at 2% plus the base rate.

If the base rate is at 1% when you take out your home loan, the interest payable would be set at 3%. If the Bank of England reduces the base rate to 0.5%, your interest rate on your mortgage would dip too, to 2.5%. Conversely, if the Bank of England sees fit to raise their rate to 1.5%, your interest rate would go up in line with the conditions of your tracker mortgage. In this case, it would rise to 3.5%.

You would typically take out this type of loan for a set period, say five years. Once the agreed period ends, you can either switch to a new tracker rate available at that time or change to a different mortgage product. This could be done with the same lender or by moving to a different lender, depending on which products offer the best deal. These loans are best sought when the base rate is low and the signs indicate it will stay that way.

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