What Is a Tracker Mortgage? Your Guide to the Pros and Cons

Mortgages can be confusing. Not only are there all sorts of hoops to jump through to get one, but you also need to decide which is the best mortgage for you—for example, a fixed-rate or tracker mortgage. But what is a tracker mortgage in the first place?

Understanding the pros and cons and how this type of mortgage works can help determine if it’s a good fit. To save you time researching, we’ve compiled this handy guide to tracker mortgages.

Every mortgage comes with an interest rate, i.e., the amount you will pay back over and above the loan amount. With a tracker mortgage, this interest rate can change over time as it ‘tracks’ another rate, usually the Bank of England’s base rate. So, if the base rate goes up, your monthly repayments will increase, and if it goes down, your repayments will decrease.

When you apply for a tracker mortgage, it’s helpful to understand the details of how they work as well as your lender’s particular offer, which may depend on employment status, debt levels, and credit score.

Yes, anyone can take out a tracker mortgage, including first-time buyers. However, you’ll need to meet your lender’s eligibility criteria.

Your monthly repayment will depend on the base interest rate, with a margin on top. For example, if the base interest rate is 4.5%, and your lender has a 1.5% margin, your total interest rate will be 6%. As the base rate rises or falls, your repayment amount will mirror it by increasing or decreasing, usually in the following month.

Some tracker mortgages last for a fixed introductory period, say 2 or 5 years, before the mortgage switches to the Standard Variable Rate (SVR), which is usually higher than the tracker rate. At this point, you may want to remortgage to find a better deal. However, some are lifetime tracker mortgages and have no fixed period.

Some tracker mortgages come with a ‘collar’ and/or a ‘cap.’ A collar means that the rate can’t fall below a certain point. A cap means it can’t rise beyond a certain point, which can be a useful limit on your monthly costs.

The Bank of England sets interest rates for the whole of the UK. Factors that can influence these include inflation (prices rising and purchasing power falling), the health of the UK and global economies, and demand for credit.

Interest rates were rising in recent years because the Bank of England was hoping to combat inflation. Through the latter part of 2024 and early 2025, rates have decreased slightly. However, they remain higher than the 2008-2022 period.

It’s unclear how interest rates will change in the near future. Predictions indicate the rate will fall further during 2025, but global economic turmoil could change this.

Whether a tracker mortgage will benefit you depends on what’s going on with interest rates. If interest rates fall, you could save money in the long run. This is especially true when compared to a fixed-rate mortgage taken out when interest rates were high. A tracker rate is also usually lower than the lender’s SVR.

In general, tracker mortgages lock you into a shorter term than other mortgage types or have lower exit fees, making them a better choice if you want to move again within a short timeframe.

Of course, mortgage tracker rates may go up as well as down. At the moment, interest rates are higher than they have been in many years. Therefore, a tracker mortgage may cost you more money than if you had taken a fixed rate before the increase. If you have an uncapped tracker mortgage, there’s ultimately no limit to how high your repayments can go.

It may also be difficult to plan ahead and budget, given the variability of monthly repayments.

A tracker mortgage differs from a fixed-rate mortgage because the repayments can go up or down depending on the movements of the base rate.

A fixed-rate mortgage will lock in a repayment amount for a specific length of time. So, if you’re looking for certainty in your budgeting, a fixed rate can be more predictable than a tracker.

However, if you’re unlucky enough to be looking for a mortgage while interest rates are high, you could be tied into a more expensive deal with a fixed rate if the rate falls.

A variable mortgage has repayments that can change over time. A tracker mortgage is a type of variable mortgage that specifically moves to track the base interest rate, but there are other kinds.

Some lenders use an SVR, which may also be based on the overall national interest rate but adjusted by the lender as they see fit. You may also find a discounted variable rate, where you will have access to a lower SVR for a certain period, before the rate adjusts back.

Whether this is more advantageous than a tracker will depend on the basis for the variable rate, which may differ from the base interest rate used for a tracker mortgage. As such, it may not present as much of a saving if interest rates fall.

A tracker mortgage is probably going to suit you if:

A tracker mortgage probably isn’t for you if:

Some lenders will allow you to switch your mortgage from tracker to fixed-rate, even without paying an early repayment charge (for example, Natwest and Barclays offer this). If your lender doesn’t offer this facility, you may need to pay to exit the tracker rate.

Yes, there can be an exit fee for a tracker mortgage. A tracker mortgage is usually established for a period of time, for example, 2 or 5 years. If you decide to change or remortgage before this time is up, you may have to pay a charge.