A tracker mortgage is a type of variable-rate mortgage. The interest rate tracks the Bank of England base rate at a set margin (for example, 1%) above or below it.

Tracker mortgage deals can last for as little as one year, or as long as the total life of the loan.

Once your tracker deal comes to an end, you’re likely to be automatically transferred onto your lender’s standard variable rate (SVR). Typically, this will have a higher rate of interest.

A tracker mortgage is just one of the many different types of mortgages you can get, so it’s important make sure you get the right one for you.

Tracker Mortgage Benefits:

• In certain economic circumstances, borrowers can secure tracker mortgage deals with very low rates of interest. For example, with the current historically low base rate of 0.5%, a +1% tracker mortgage would charge a rate of just 1.5% interest.
• While your tracker mortgage rate is low, you can take the opportunity to overpay on your mortgage, shortening the total length of time it will take you to pay off your mortgage, and cutting the amount of interest you pay. Many lenders will now allow you to overpay on a tracker mortgage without incurring any financial penalties.
• In addition, your rate is not dependent on the whim of your lender – it is not affected by changes in your lender’s SVR, just changes in the base rate.

Tracker Mortgage Drawbacks:

• On the other hand, as a variable deal a tracker mortgage will not provide total rate security. If the base rate suddenly rises, so will the interest rate you pay.
• This means that a tracker mortgage may not be suitable for someone on a tight budget, who needs to know exactly how much their monthly mortgage repayments will be. In these circumstances, it would make sense to choose a fixed-rate mortgage instead.
• If you want to leave a tracker mortgage deal before the end of the set term, you are also likely to be charged an early repayment fee.
• Your home may be repossessed if you do not keep up repayments on your mortgage.

A standard variable rate mortgage (also known as an SVR or reversion-rate mortgage) is a type of variable-rate mortgage. The SVR is a lender’s ‘default’ rate – without any limited-term deals or discounts attached.

When a fixed, tracker or discount mortgage deal comes to an end, you will usually be transferred automatically onto your lender’s SVR.

Who sets standard variable mortgage rates?

A lender can raise or lower its SVR at any time – and as a borrower you have no control over what happens to it.

Standard variable rates tend to be influenced by changes in the level of the Bank of England’s base rate. However, a lender may also decide to change its SVR while the base rate remains unchanged.

Lenders’ standard variable rate mortgages typically range from around 2% above the base rate (currently set at 0.5%) to 5% above it or even more..

Standard variable rate mortgage benefits:

• The Bank of England base rate has stood at an historic low of 0.5% since March 2009. As a result many SVRs are at relatively low levels.
• So, if your previous mortgage deal has come to an end and you have been transferred onto a low SVR, you may be able to take advantage of that low rate by staying on it, and not looking for another deal.
• Your home may be repossessed if you do not keep up repayments on your mortgage.

Standard variable rate mortgage drawbacks:

• However, this is a very risky strategy – as a lender’s SVR offers no rate security. A lender can increase its SVR at any time. Several lenders have increased their SVRs in recent years, sometimes by significant margins.
• If you are on a tight budget and relying on your SVR remaining low, you’re in a very vulnerable position. In this case, it is very important you try to remortgage onto a fixed-rate deal (which offers rate stability) before it’s too late.
• Your home may be repossessed if you do not keep up repayments on your mortgage.