Tracker mortgages – the way to go?

The significant and dramatic reductions in the Bank of England interest rate in the past few weeks has seen a flurry of interest in the area of tracker mortgages, that is those that follow the base rate to at least some degree.

The average tracker mortgage, according to available data, has fallen from 6.27 percent in October of this year to only 3.27 percent now, in early December. So what does this mean for the consumer?

How much can be saved with a tracker mortgage?

Consumer analysts have suggested that the average save per mortgage could be as much as £260 per month. That is a considerable saving, and one that will be welcomed by those who have tracker mortgages.

With over four million tracker mortgages currently in play that is a saving of over £750 million in total in the next month, amounting to a staggering £9 billion forecast for the coming year at current interest rates.

However, there are pitfalls to some tracker mortgages, in particular those that are restricted by a collar.

What is a collar?

Some tracker mortgages come with a collar attached, and this is an interest level below which repayments can not fall. It may be that a tracker mortgage has a collar of, say, three percent, meaning that if the base interest rate falls below that amount no further savings will be given to the borrower.

At present those with collared tracker mortgages stand to benefit, but only up to the level their agreement is set at; with further rate costs forecast in the coming months it could be worth the borrower checking the collar level on their mortgage.

What advantages are their with a tracker mortgage?

There are a number of benefits associated with tracker mortgages, not least the aforementioned link to the base interest rate, and some of these are more noticeable at some times than at others. The added confidence of knowing that the interest rate is linked to a falling base rate is a major benefit, but there are other benefits that may be offered.

Some lenders will provide an incentive in the form of an initial rate that is lower than the current fixed rate of interest, while others will offer the option of moving to a fixed rate mortgage at a certain point without incurring the charges that may otherwise be applied for early termination of the contract.

The savings made by a tracker are not influenced by the lenders standard rate but by the base rate set by the Bank of England or, in some cases, another specified rate, and the contract obliges the lender to follow this rate within an agreed period of any changes being announced.

Are there any other disadvantages of a tracker mortgage?

Even if the tracker mortgage is not hindered by a collar there are some potential pitfalls that should be understood.

One of these concerns the very nature of tracking a specified interest rate for just as savings can be made should that rate fall, so costs can be incurred should the rate rise. The Bank of England may currently be cutting interest rates and, thus, saving tracker customers money, but when those rates begin to rise again the monthly repayment will increase.

Like all such agreements attention should be paid to the small print as this is where the finer details are to be found. There may be any number of agreements between borrower and lender, among them the aforementioned collar and also an occasional clause that allows the lender to change the margin that the rate tracks the base rate. This can result in savings being somewhat less than anticipated, and sometimes in costs being greater.


The usual threat of early repayment fees still stands with regard to tracker mortgages, and there are a number of further fees that may be part of the agreement. It is vital to understand what happens following the tracker period, as this is a time where interest rates can be increased by prior agreement, and repayments have been known to increase considerably as a result.

It is a good idea to seek independent finacial advice prior to accepting anyone particular type of mortgage. has a good range of information from consumer rights to guides on financial products.

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