Your home may be repossessed if you do not keep up repayments on your mortgage. Tracker mortgage payments can increase if the Bank of England base rate rises. Check whether you could still afford repayments at a higher rate before committing.
Quick answer
Tracker mortgages directly follow the Bank of England base rate plus a fixed margin. Your monthly payment rises and falls as the base rate changes. They can be lower cost than fixed rates when rates are falling or when fixed rate premiums are high. The trade-off is payment uncertainty - you need to stress-test your budget against potential rate increases before committing.
Mortgage advice note: This page provides general information only. For personalised advice, speak to an FCA-authorised mortgage adviser who can assess your individual circumstances.
How Tracker Mortgages Work in Practice
The Bank of England's Monetary Policy Committee (MPC) meets eight times a year to set the base rate. Any change in the base rate feeds directly into your tracker mortgage rate, typically taking effect within a month. Your lender is contractually required to apply the change - they cannot move the tracked rate independently for commercial reasons.
Types of Tracker Mortgage
Initial period tracker
Fixed margin above base rate for a set initial period (e.g. 2 or 3 years). At the end of the period, you typically revert to the lender's SVR. These often have ERCs during the initial period.
Lifetime tracker
Tracks the base rate for the full mortgage term. Often carries no early repayment charges, giving maximum flexibility to overpay, switch deals, or repay in full at any point. Rates may be slightly higher than initial-period trackers to reflect this flexibility.
Stress Testing Your Payments
Before taking a tracker, calculate what your monthly payment would be if the base rate rose by 1%, 2%, and 3% above today's level. Ensure your budget can comfortably absorb each scenario. Lenders run the same test as part of their affordability assessment, but you must be satisfied yourself that you can manage the risk.
Frequently Asked Questions
A tracker mortgage has an interest rate that moves directly in line with a specified external benchmark, most commonly the Bank of England (BoE) base rate, plus a set margin. For example: base rate + 1.5%. If the base rate is 5%, you pay 6.5%. If the base rate rises to 5.5%, you pay 7%. The margin above the tracked rate is fixed for the lifetime of the deal, but your overall rate moves with the benchmark.
Most trackers have a collar - a minimum rate below which the mortgage interest cannot fall, regardless of how low the tracked benchmark drops. For example, a collar at 0% prevents your rate going negative even if the base rate does. Always check the collar rate in any tracker mortgage offer. Some historical trackers issued before the low-rate era did not have collars, which is unusual in current products.
Many tracker mortgages are designed with more flexibility than fixed rate products and some have no early repayment charges at all. Others have ERCs during the initial deal period. Some lenders offer lifetime tracker products (lasting the full mortgage term) with no ERCs, providing full flexibility to overpay or switch at any time. Check the specific product terms carefully, as this is a key differentiator between tracker deals.
A tracker may be preferable when: you expect base rates to fall during your deal period; you want the flexibility to overpay or leave without a large ERC; you are comfortable with payment fluctuations and have sufficient income cushion; or fixed rates are priced significantly higher than trackers in the current market. Timing rate movements is difficult - if certainty matters more than cost optimisation, a fixed rate is the simpler choice.
Both are variable rate mortgages. A tracker follows a published external rate (usually the BoE base rate) by a set margin. A discount mortgage is set at a defined discount to the lender's own SVR. The distinction matters because an SVR can be changed at the lender's discretion, while the BoE base rate is publicly set and the tracker margin is contractually fixed. Trackers are more transparent about what drives rate changes.
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