Due to the impact of COVID-19, the Bank of England has cut the base rate to 0.1% – the lowest rate ever recorded. This means that tracker rates are currently very low (30.04.2020). Unlike the majority of fixed rates, there are many tracker rate mortgages with no ERCs (early repayment charges) which give you the freedom to pay off the balance of your mortgage at any time, or even to remortgage to a fixed product when the base rate looks like it’s going to increase. If you’re considering taking out a mortgage or remortgaging your property onto a tracker mortgage, call us on 03304 332 927 or make an enquiry.
What Is a Tracker Mortgage?
A tracker mortgage is a mortgage with a variable interest rate that fluctuates directly in line with the Bank of England base rate. A variable interest rate is a rate that isn’t fixed. Tracker rates are always above or below the base rate by a set margin – e.g. 1.4%. Whether they’re above or below the base rate will depend on if the base rate is particularly high or low.
Tracker rates are available on both repayment and interest-only bases. There are many residential and buy-to-let tracker mortgages on the market.
Other Variable Rate Mortgages
- Lifetime tracker mortgage - this is where you’re on a tracker rate for the entire mortgage term, not just for an initial introductory deal period
- Discount rate mortgage – this is a type of mortgage where the interest rate sits below the lender’s SVR (standard variable rate) by a set margin and fluctuates in line with it
What Are Standard Variable Rates?
- An SVR or standard variable rate is a rate each lender sets themselves
- Lenders may use the Bank of England’s base rate as a guide but don’t have to directly follow its fluctuations
- Although SVRs are variable rates, you wouldn’t take out an SVR mortgage as SVRs are often more expensive than other rates
- Your lender’s SVR is the rate you’re transferred onto when your introductory deal ends
- Your introductory deal is the rate you sign on with – e.g. a 2 year tracker rate at 1.5% with an overall 10 year mortgage term
- You typically remortgage onto another introductory deal with a new lender when you’re about to go onto your existing lender’s SVR
- You should start the remortgage process up to 6 months before your introductory deal ends
Should You Choose a Fixed or Tracker Mortgage?
Whether a fixed or tracker mortgage is more suitable for you will depend on your unique situation. The main difference between them is that fixed rates stay the same for the entire introductory deal period or “fixed term”, while normal tracker rate mortgages are above or below the Bank of England base rate by a set margin and move directly in line with it for the whole introductory deal period.
Benefits of a Fixed Rate Mortgage
A fixed rate:
- Offers a clear idea of exactly what your mortgage payments will be each month
- Makes it easy to budget
- Doesn’t increase if the base rate goes up
Drawbacks of a Fixed Rate Mortgage
A fixed rate:
- Doesn’t fall if the base rate falls
- Almost always comes with ERCs
Benefits of a Tracker Rate Mortgage
A tracker rate:
- Gives you the opportunity to benefit from lower interest payments while the base rate is low or when it falls
- Often comes with no ERCs (early repayment charges) which means you can remortgage before your introductory deal ends if the base rate looks like it will rise
Drawbacks of a Tracker Rate Mortgage
A tracker rate:
- Will increase whenever the Bank of England base rate increases which will increase your interest payments
What About Trackers with ERCs vs Trackers Without ERCs?
Some trackers come with ERCs (early repayment charges) and some don’t. ERCs are fees you have to pay if you leave your mortgage before your introductory deal ends.
Here’s what you need to know:
- Trackers with ERCs usually have slightly cheaper rates than trackers without ERCs
- Trackers without ERCs may have slightly more expensive rates, but they give you the freedom to switch to a new, cheaper product while you’re still on your introductory deal should the Bank of England base rate rise
Compare Tracker Mortgages and Variable Rates
Use our tool below to compare the best variable mortgage rates on the market, including the best tracker mortgage rates.
How Can John Charcol Find You the Best Variable Mortgage Rate?
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Process for Purchase/Remortgage
1. Meeting with Advisers and Mortgage Research
When you phone us, you can either arrange a phone appointment with your adviser or a face-to-face meeting – whatever suits you. Your adviser will ask you some questions and, once they have all the information they need, they’ll go away and find the best mortgage for your circumstances and needs. They’ll also arrange a follow up call to present you with what they’ve found. It may require more than one conversation to gather all the right information, depending on where you are in your property search.
2. Decision in Principle
Once you’re happy with their recommendation, they’ll go about securing your DIP (Decision in Principle) - which is basically a promise from the lender that they’ll loan you money on the condition that the information you’ve provided is correct and subject to a valuation of the property.
3. Offer on Property/Proceed with Remortgaging
After you’ve secured a DIP (Decision in Principle), you’ll be in a great position to make an offer on a property or move forward with remortgaging.
4. Pre-Application and Submission
Following the acceptance of your offer on a property or the decision to move forward with remortgaging, we’ll send you some information which explains all the documents we need to submit to the lender. You’ll be assigned a client relationship manager who’ll check and submit certified copies of your documents; they’ll liaise with both you and the lender. Your adviser will then submit the fully packaged mortgage application.
5. Lender Underwriting and Valuation
The lender will underwrite your application; this basically means they’ll verify the information you’ve provided and review all your documents for themselves. They’ll also instruct a valuation for their purposes on the property to make sure there are no significant problems with it.
6. Mortgage Offer
If the lender is happy with everything they’ve found, they’ll send you a mortgage offer. They’ll also send us a copy.
After you’ve accepted your mortgage offer, you’ll go through the legal part of the process, known as conveyancing. This is where the solicitors/conveyancers draw up contracts and organise the actual, legal purchase of the property or the remortgaging process. If you’re purchasing, you’ll also need to arrange buildings insurance at this stage, making sure it’s in place from exchange.
8. Exchange and Completion
If you’re buying a property, your conveyancer/solicitor will exchange contracts with the seller’s conveyancer/solicitor; it’s at this point that you would put down your deposit and be legally bound to the property. The purchase will complete when the money is transferred on an agreed-upon date. For buy-to-let purchases, it’s worth noting that as soon as you have a date for completion you’ll know when the property can take tenants and can therefore start speaking to a letting agent.
If you’re remortgaging, then there’ll be no exchange of contracts, nonetheless legal work will be required as you’re switching lenders. Your conveyancer/solicitor will instead set a date to draw down the funds and pay off your existing lender(s) once the mortgage offer’s released.
Tracker Mortgage FAQs
How Does a Variable Rate Mortgage Rate Work?
A variable mortgage rate “varies”. It moves up and down, depending on the Bank of England base rate or market rates.
“Variable rate” is an umbrella term for trackers, lifetime trackers, discount rates and SVRs (standard variable rates). You wouldn’t actually take out a product called a “variable rate mortgage”, but you might take out a tracker or discount mortgage which are types of variable rate mortgage.
Unless you’re on a lifetime tracker, you’ll have an introductory deal that will end after a certain period of time. Your introductory deal will be either a fixed, tracker or discount rate. When this rate ends you’ll be transferred onto your lender’s SVR. You would start to remortgage onto a new product up to 6 months before this happens. If your mortgage has no ERCs – as is the case with a lot of tracker mortgages – then you’ll be able to remortgage whenever you want, most significantly during your introductory deal period.
What Is Currently the Cheapest Tracker Mortgage Rate?
You can check the best tracker rates currently on the market using our free tool above.
Can I Get a Lifetime Tracker Mortgage?
Whether you qualify for a lifetime tracker mortgage will depend on your situation. There are still lifetime tracker mortgages on the market, but they’re not as popular nowadays because the rates tend to be higher than normal tracker mortgages with a set introductory period - e.g. 2 years.
What Are the Best Variable Mortgage Rates?
The Bank of England base rate and each lender’s SVR will determine what the best variable rates are at any given time. Use our comparison tool above to look at rates currently available. You should speak to a broker if you want advice on the best deal for your specific situation. Call us on 03304 332 927 or send us an enquiry.