Tracker mortgages: What are they and how do they work?

With tracker mortgages, your interest rate will fluctuate based on economic conditions.

In the United Kingdom, tracker mortgages are usually based on the Bank of England (BoE) base rate, although some might be based on the LIBOR rate.

Rather than a percentage, the interest rate will be displayed as the following: BoE base rate + X%. For example, if the Bank of England base rate is 0.75%, and your tracker mortgage rate is BoE + 2%, you’ll pay an interest rate of 2.75%.

These deals can be particularly appealing when the BoE rate is low, but there is a danger that your payments could become unaffordable if it increases.

Although some tracker mortgages are capped, many place no limit on how high your interest rate could skyrocket.

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What is the Bank of England base rate?

The BoE base rate is the interest rate that commercial banks pay when they borrow money from the Bank of England. The rate is based on economic conditions within the UK and is decided every 6 weeks by the BoE’s Monetary Policy Committee. The committee’s goal is to stimulate the economy to keep the country’s inflation rate as close to 2% as possible.

Banks tend to charge the BoE base rate when lending to each other. If the rate goes up, these extra costs are passed on to customers via rate rises across all products.

The interest rate on tracker products will rise automatically, but the banks tend to manually increase the rates on all other types of loans too.

The silver lining is that savings rates also tend to increase if the Bank of England base rate rises, helping those with plenty of money in the bank to cope with their additional mortgage interest.

How often will the tracker rate change?

The mortgage tracker rate will change when the Bank of England decides to change its base rate.

The BoE’s Monetary Policy Committee meets 8 times a year to debate and then vote on whether or not to change it. The Bank of England base rate is currently 5.25%.

Types of tracker mortgage

There are other types of variable-rate mortgages, but only tracker mortgages are based on economic conditions.

Some mortgages adopt a tracker rate for a fixed introductory period, before reverting to the lender’s standard variable rate. Others will let you keep the same tracker rate for the entirety of the mortgage term. These are called lifetime tracker mortgages. The longer your tracker rate is fixed for, the higher it tends to be.

What is the difference between a tracker, variable and fixed mortgage?

Both tracker and variable mortgage rates are subject to change during your mortgage term. However, tracker rates are tied to the BoE’s base rate, while variable mortgage rates are set by the mortgage lender and can change at any time. This means that tracker mortgages can often work out to be cheaper than variable mortgages.

With a fixed term mortgage the interest rate stays the same for an agreed period of time. The fixed period is typically between 2 and 5 years, although some lenders may go up to 10 or 15 years.

Why would you choose a tracker mortgage?

When the BoE base rate is low, as it has been in recent times, your monthly mortgage repayments will be more affordable. If you believe it’s likely to drop in the near future, you could benefit from an extremely cheap mortgage.

Many of these mortgages allow you to overpay without a penalty charge. Doing so will allow you to clear your mortgage debt quicker, and this should be easier when your interest rate is low.

If you’re an individual whose income tends to be highly affected by interest rates, and you have the earning power to cope with potential interest rate rises, a deal like this could appeal.

Why would you avoid a tracker mortgage?

If you don’t have a lot of disposable income, and would struggle to cope financially if your mortgage payments went up, it’s best to avoid a tracker mortgage.

Indeed, many people prefer the certainty provided by a fixed rate mortgage, as this makes it easier to stick to their household budget without falling into debt.

Pros and cons of tracker mortgages


  • Your interest rate drops when the Bank of England base rate does.
  • Overpayments are usually allowed.
  • Your interest rate is only based on economic conditions, rather than the commercial desires of your lender.


  • Less certainty with your mortgage payments.
  • Your payments could become unaffordable if the Bank of England base rate rises.
  • These products can be harder to be approved for, due to the uncertainty surrounding the size of your monthly repayments.

Capped-rate mortgages

Capped-rate mortgages are similar to tracker mortgages, in that the interest rate will fluctuate alongside another publicly-available benchmark rates, such as LIBOR or the Bank of England (BoE) base rate. The key difference is that capped-rate mortgages have a maximum rate that cannot be surpassed. This gives homeowners the security associated with a fixed-rate mortgage.

How does a capped mortgage work?

A capped-rate mortgage will typically advertise its interest rate (for example, BoE + 2%) and its capped rate (perhaps 5%). In this case, the buyer can be sure they’ll pay no more than 5% interest during the initial capped-rate period. Once this introductory period ends, they’ll typically either be switched onto the lender’s standard variable rate or perhaps their existing tracker rate without the cap.

Often, capped-rate mortgages have higher interest rates than the best tracker-rate mortgages. Essentially, homeowners are paying extra for the security that the rate cap provides.

Capped-rate mortgages are similar to fixed-rate and tracker mortgages in that most of the introductory deals last between 2 and 5 years. As with any other type of mortgage, the best rates are available with shorter term deals.

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Matthew Boyle is a banking and mortgages publisher at Finder. He has a 7-year history of publishing helpful guides to assist consumers in making better decisions. In his spare time, you will find him walking in the Norfolk countryside admiring the local wildlife. See full bio

Matthew's expertise
Matthew has written 244 Finder guides across topics including:
  • Helping first-time buyers apply for a mortgage
  • Comparing bank accounts and highlighting useful features
  • Publishing easy-to-understand guides

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