Tracker mortgages: What are the pros and cons?

The Question

I’ve heard interest rates are going to fall in 2025, and therefore I was wondering whether I should take out a tracker mortgage.

I am a first-time buyer and am currently viewing properties. I have been told most buyers choose a fixed rate, but I am not keen to lock into to price which could change.

What are the pros and cons of a tracker mortgage and are they suitable for first-time buyers?

Darren’s Answer

The first thing I’d say is there’s a lot of speculation about whether rates will fall or not in 2025. Lenders remain cautious, with several different factors impacting market conditions.

We have seen the Bank of England (BoE) freeze the base rate following the most recent UK budget back in October, and there’s been a small increase in the overall inflation figure.

Generally, economists do expect rates to fall but naturally this is all dependent on how the market is performing.

Tracker rates

Bear in mind that there is a difference between a tracker rate and a variable rate.

A tracker rate normally follows the Bank of England’s base rate at a set percentage above this rate. For example, if you have a rate that ‘tracks’ at 1% above base then your rate would be 5.75% as the base rate is currently 4.75%.

Variable rates

A variable rate with a lender usually tracks the lender’s own Standard Variable Rate, again at a percentage above (or sometimes below) this rate. Lenders will have their own rate so this it depends on what that is in each case.

These deals tend to be for an initial period – similar to fixed rates – usually between two and five years. Alternatively, you can get a Lifetime Tracker, which will last for as long as your mortgage term.

What to consider

With both above options, it is important to note that your mortgage repayments (including the interest you pay on your mortgage) could change.

Remember that it can be difficult to plan ahead or be sure of what your payments will be in the months ahead and it is important to make sure you can still afford your mortgage if your payments increase.

Benefits of tracker rates include the fact that:

• If the BoE base rate drops, so will your repayments.
• Many lenders will allow you to switch rate without an Early Repayment Charge, meaning that if rates do increase, you could switch to a lower rate or fixed rate.
• Many introductory rates can be good, and your repayments can be lower than market fixed rates.

However, drawbacks of Tracker rates are the reverse of the above scenarios, for example a rise in the base rate, or lenders imposing Early Repayment Charges.

It is always a good idea to speak to a mortgage broker who can guide you through the process and help you understand all the available options.

Meet our expert…

Darren Polson is head of mortgage operations at Aberdein Considine. He has been writing a regular column for What Mortgage for over two years and is now here to answer YOUR questions.

If you have a question for Darren please email kate.saines@emap.com or leave a message in the comments below.