As mentioned above a tracker mortgage follows the Base Rate (sometimes called Bank Rate). Your rate will be fixed as a particular percentage above (or occasionally below) this rate. This is often called the margin. The lower this percentage figure (or margin) the better, as, particularly in a low interest rate environment, it will often make up a significant portion of your interest rate.
This means that your mortgage payments change as interest rates change. For example, if your tracker mortgage is the Base Rate +2.49%, and the Base Rate is +2%, then you would pay 4.49%.
The cost to you of a Tracker mortgage can vary quickly. If the Base Rate rises, your payments will increase in line with that rise. If they fall your mortgage repayments will also fall.
Whilst the underlying rate (Base Rate, LIBOR or ECB Rate) can rise and fall the margin on your Tracker rate is normally fixed for the term of your mortgage. This will be detailed in your mortgage contract. The term on your mortgage can vary considerably from around 2 years up to a 'lifetime' mortgage which can be twenty five or thirty years. Be aware that normally lending institutions also charge an arrangement fee each time you renegotiate your mortgage.
A low rate may appear attractive but, if it is only for a short period and there is a high fee attached, this may prove more expensive than a slightly higher rate over a longer term.
Tracker mortgages normally only rise or fall if the underlying rate changes. Borrowing institutions can amend Standard rates at any time, and have done so in the past few years to either recover additional lending costs resulting from the changing economic climate or to maintain the product profitability for that Bank or Building Society.
Technically it can be - it would mean customers would be charged for holding money at the bank, and the banks would have to pay the Bank of England for deposits they hold with them.
With many older tracker mortgages, particularly those drawn before 2008 this eventuality had not been foreseen, and it is therefore possible that, if negative Base Rates did come to pass, customers with these older mortgages could end up being paid to borrow by their Bank or Building Society!
Mortgages linked to the ECB lending rate will normally be a Euro mortgage. These can be attractive to those with a property in the Eurozone or whose income is in Euros, as it reduces the risks of the exchange rate moving against them. If you are reliant on the fortunes of the Eurozone rather than the UK you may wish to consider such a loan, but do be aware that interest rates are a very blunt tool with which to manage the economy across the very different economic situations facing the different Eurozone countries. Libor mortgages only tend to be offered on very large loans - typically to corporate bodies, or those with very large Buy to Let portfolios.
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Our service provides mortgages from the 'whole of market' meaning that, rather than just one mortgage being considered for you, a wide range of products with differing features, terms, rates and policies can be offered. This choice is a key benefit of our service.
Our mortgage service is provided by London & Country Mortgages Ltd. Beazer House, Lower Bristol Road, Bath, BA2 3BA who are authorised and regulated by the Financial Services Authority. Their FCA number is 143002. You also have the added reassurance of a MoneyMaxim consultant on hand in case of any queries or additional guidance.
This content was last reviewed on 30/10/2018