Tracker mortgages

Trackers are variable-rate mortgages, which means their rates move up and down to reflect the movement of another index. This index is usually the Bank of England’s base rate (BBR) or can be the London/European or US inter-bank offered rate. So, for example, if you are asked to pay 0.5% above BBR for two years and BBR stands at 4.75%, this makes the current pay rate 5.25%. If BBR increases to 5% then your tracker rate increases to 5.5%.

Advantages
The main benefit of trackers over other types of mortgage is that they are much more transparent. They are based on an independent rate, so you’re not at the mercy of the lender as to how much they reduce or increase your rate. For example, when interest rates increase lenders sometimes add on extra to their SVR on top of what the Bank of England adds to the base rate (0.3% instead of 0.25%, for example), or similarly fail to pass on the full percentage of a drop.

Disadvantages
Unlike fixed-rate loans, trackers don’t offer protection from rate increases and you won’t have the security of knowing exactly what your repayments will be. Some of the best tracker deals have higher arrangement fees or require a bigger deposit from borrowers.

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