What are base rate trackers?

A base rate tracker mortgage tracks the bank base rate (BBR), by which the interest rate is set by the Bank of England each month, where the lender sets their rate a percentage above or below this.  Almost all lenders offer a tracker mortgage of some sort.  Here is an example to help you understand.  Say the bank base rate is 8%.  A mortgage that is 1.5% above the base rate for 2 years will start off at 9.5%, so if the base rate moves during this period, so will your rate, but always with a 0.5% margin.  

The Advantages of a base rate tracker.

1. If the BBR falls, so too will your monthly repayments.

2. It is essential that a base rate tracker deal move your rate in line with those of the BBR, unlike discounted deals and standard rates where it often depends upon the rates of the lender.

3. The majority of trackers don’t have any repayment charges, so if rates rise you may be able to switch cheaply and in time to a fixed or capped rate product, saving you a lot of money.

The Disadvantages of a base rate tracker.

1. On the reverse now, if BBR falls then so too will your monthly repayments.

2. Tracker deals often require an early repayment charge during the first few years, which can trap you into the deal, making it hard for you to change it.

3. Some lenders are able to reserve the right to change the margin by which your rate tracks the base rate, under certain conditions.  Your lender also has the right to delay changing your rate when the BBR moves.