Interest rates
Tracker Mortgages
Tracker mortgages are increasingly common. They are usually
linked to the Bank of England base rate, in that you pay
a set margin above the current base rate level. Unlike many
of the other types of rate, most tracker rates will not
revert to a lender's SVR at any point during the life of
the loan. They will continue to track the base rate until
you have either paid off your mortgage or switch provider
or product.
Advantages
There is no need to rely on your lender cutting rates in
line with bank base rates, which some don't necessarily
always do immediately after an interest rate decision.
Your mortgage will never revert to the SVR, so you have
some security in that you will never be paying a highly
uncompetitive rate.
It is quite common to find tracker mortgages that have
discounts and stepped discounts built into them, providing
an added benefit. You may, for example, pay 0.75% below
the Bank of England base rate for 1 year, after which time
the rate is guaranteed to be not more than 1.75 % above
the base rate for the remaining duration of the loan. As
with other stepped products, there can be numerous steps
in the discount before it settles at the final level and
while pure tracker mortgages may be free of redemption penalties,
those with discounts attached will almost certainly not
be.
Disadvantages
As with other variable rates, you can be in for a rough
and unpredictable ride, particularly if the MPC were to
make a series of rate increases. Any volatility in interest
rates makes it difficult to budget for mortgage repayments,
thereby making this type of rate unsuitable for some borrowers.
