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Keys To The New Place

Tracker Mortgage Rates

Did you know that as of June 2023 18% of all mortgages across England and Scotland were on variable and/or tracker rate mortgages?

That's quite a chunk of the market. You're likely wondering why they're so popular and what benefits they could possibly offer to homeowners like you.

These types of mortgages are distinct in that their interest rates 'track' the Bank of England's base rate. When it rises or falls, so does your mortgage rate. But is it as simple as it sounds and more importantly, is it beneficial for you in the long run?

What is a tracker mortgage

A tracker mortgage is a type of home loan where your interest rate tracks, or follows, a specific benchmark, typically the Bank of England Base Rate. This means you're not locked into a fixed interest rate, but rather, your rate will increase or decrease in line with the base rate.

 

Now, you're probably wondering, how does it affect you? It's all about risk and reward. If the base rate falls, so does your interest, and your monthly payments can go down. Sounds great, right? But if the base rate rises, so does your interest, and you'll be paying more each month. That's the risk you're taking.

 

Additionally, tracker mortgages often come with a 'collar', meaning there's a minimum rate you'll pay, even if the base rate drops to zero or below. So, you're not going to get something for nothing.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

What is a  collar on a tracker mortgage?

In the world of tracker mortgages, you'll often come across the term 'mortgage collar', which essentially acts as a safety net for your lender. This collar is a minimum interest rate set by the lender. Even if the base rate drops to a level below this collar, your mortgage rate won't go any lower. It's a form of protection for the lender, ensuring they'll always receive a certain level of interest.

 

Let's say your tracker mortgage rate is set at 1% above the base rate and the base rate drops to 0.5%. Without a collar, your mortgage rate would drop to 1.5%. However, if your lender has set a collar of 2%, your mortgage rate won't drop below this, regardless of how low the base rate goes.

 

It's important to be aware of any collar on your mortgage as it could impact the potential savings you might make from a falling base rate. So, always check the fine print before agreeing to a tracker mortgage. Remember, while a collar protects the lender, it might limit your benefits in a low-interest-rate environment.

Can I overpay a tracker mortgage?

When you're considering a tracker mortgage, you might wonder if you're allowed to overpay. The good news is, yes, you can. Overpaying is a strategy you can use to reduce your total interest cost and shorten the life of your loan.

 

In most cases, lenders in the UK do allow overpayments on tracker mortgages. However, there's usually a limit to how much you can overpay without incurring an early repayment charge. This is typically 10% of the outstanding mortgage balance per year, but it can vary from lender to lender with some lenders allowing you to repay any amount, at any point, with no early repayment charges. It's therefore essential to check the terms and conditions of your mortgage agreement before making overpayments.

Best tracker mortgage rates

Having considered the possibility of overpayments, let's now explore how to find the best tracker mortgage rates in the UK.

It's essential you conduct thorough research and compare rates across lenders to secure the best deal.

You can start by visiting comparison websites. They'll provide you with a broad overview of the current rates on offer. However, don't just rely on these sites. It's also worth speaking to a mortgage broker, who'll have access to deals that aren't available directly from the high street.

When comparing rates, don't forget to look at the overall cost of the mortgage. A low tracker rate may seem appealing, but it could come with high fees or penalties for overpayments. Make sure you're aware of all the associated costs before making a decision.

Pros and cons of a tracker mortgage

Now, let's delve into the pros and cons of a tracker mortgage to help you decide if it's the right choice for you.

 

On the plus side, a tracker mortgage alludes to transparency. It tracks the Bank of England's base rate, so you'll always know how your rate is determined. When the base rate is low, your payments will be too, potentially saving you a fair bit of money. Additionally, there's occasionally no early repayment charge, which gives you the flexibility to overpay or switch without penalty.

 

However, it's not all rosy. The main drawback is uncertainty. If the base rate rises, so does your mortgage payment. This can make budgeting tricky, especially if you're stretched thin. Also, some tracker mortgages come with a 'collar', meaning the rate won't fall below a certain level, limiting your savings potential.

  • What Is the Eligibility Criteria for Applying for a Fixed Rate Mortgage?
    To qualify, you'll need a good credit score, stable income, and a low debt-to-income ratio. Lenders also consider your employment history. It's not just about net worth, but your ability to make consistent payments.
  • Can I Switch to a Fixed Rate Mortgage From A Variable rate mortgage.
    Yes, you can switch from a standard variable rate to a new fixed rate. You can do this through requesting a remortgage, which is moving your mortgage from one lender to another. You can explore this more on our remortgage page. Alternatively it may be financially beneficial to remain with your current lender and seek a new product with them.
  • Are There Any Penalties for Late Payments on Fixed Rate Mortgages?
    Yes, there can be penalties for late payments. It's important to review your mortgage offer carefully, as terms may vary. If you are worried about your finances or struggling to meet your mortgage payments it is always advisable to contact your mortgage lender as soon as possible. Remember, your mortgage is secured against your home (or other property) and failing to maintain your payments can result in repossession.
  • Can I Remortgage Before My Fixed Rate Ends?
    Yes, you can remortgage before your current fixed rate deal ends. However, you'll likely face early repayment charges. It's crucial to weigh the costs of remortgaging against the potential savings. Your early repayment charges will be available to view on your mortgage offer, by speaking to your lender or liaising with your mortgage broker who can obtain these for you.
  • Are all mortgage brokers whole of market?
    When it comes to the range of products they offer, not all mortgage brokers are whole of market. Some brokers have limited access, which means they can't provide you with all the options that might be beneficial for you. They might only be able to offer the products from a select group of lenders. In contrast, whole of market brokers have access to a wider range of products from various lenders. They aren't tied to any specific lender, allowing them to provide you with the most suitable mortgage deal that fits your individual needs. Here's a quick rundown of what to expect from both types: - Limited access brokers mightn't provide a full spectrum of options, which could cause you to miss out on a better deal. - Whole of market brokers can offer a greater variety of mortgage products, increasing your chances of finding the perfect fit. - Brokers with limited access may speed up the mortgage process, but at the potential cost of a better deal. - Whole of market brokers might take longer to finalise your mortgage due to the wide range of options they explore, but it's worth it if you end up with a better deal.
  • Are there any risks to not getting advice from a broker?
    Skipping professional advice from a mortgage broker could expose us to certain risks. It's easy to fall into the trap of thinking we've got it all figured out. After all, we've got countless online resources at our disposal. However, without a broker's expertise, we're likely to encounter some challenges. There are several potential pitfalls we could stumble into: Lack of Access to All Options: Brokers have access to a wider range of mortgage options than we do as individuals. Without their guidance, we might miss out on a better deal. Risk of Overpaying: Without a broker's knowledge of the market, we could end up accepting a mortgage with higher interest rates or unfavorable terms. Complex Process: Navigating the mortgage process can be complex. A broker's expertise can streamline the process and reduce the risk of errors. Time-consuming: Searching for the right mortgage, negotiating terms, and handling paperwork can be time-consuming. Brokers can handle these tasks on our behalf, freeing up our time Regulatory Protection: If you do not take advice and the mortgage later turns out to have been unsuitable for you then you do not receive the same levels of consumer protection offered through the Financial Conduct Authority, Financial Ombudsman and Financial Services Compensation Scheme
  • When is the best time to get a mortgage broker?
    Given the potential pitfalls of navigating the mortgage process without professional guidance, it's crucial to determine the ideal timing to bring a mortgage broker into the picture. We believe the best time to engage a broker is at the very beginning of your home buying journey. Before you even start looking at properties, a broker can provide a clear understanding of your borrowing capacity, which can significantly streamline your property search. They'll assess your financial situation and give you a realistic idea of how much you can borrow. This can prevent the disappointment of falling in love with a property that's beyond your budget. Furthermore, when you're ready to secure your mortgage, a broker's expertise can prove invaluable. They can negotiate on your behalf, potentially securing better interest rates or terms than you could achieve alone. They'll also guide you through the paperwork, ensuring all necessary documentation is correctly completed and submitted. In essence, the earlier you involve a mortgage broker, the smoother your property purchase journey can be. They'll help you make informed decisions from start to finish, providing a pivotal role in securing your dream home.
  • What questions should I ask my mortgage broker?
    To ensure we're getting the best possible deal, it's crucial you ask your mortgage broker the right questions. First, you should ask about their experience and qualifications. It's important they've a deep understanding of the industry and the necessary credentials to back that up. Next, you must inquire about the types of mortgages they offer. Not all brokers offer all types of mortgages, so we need to ensure they can provide the home loan that suits our needs. You should also ask about fees. While we're often focused on the interest rate, it's just as crucial to understand all the fees involved.
  • Do you charge a fee?
    We charge a fee for our services, of £425, because we are confident we offer invaluable services to our clients. We act as the intermediary between yourself, as the borrower and the mortgage lender. In addition to this we will liaise with the estate agents involved and your conveyancers to speed the process along. As we are whole of market we have access to a wide range of lenders and mortgage products, including those that are not widely advertised. This means that we can often find loans with lower interest rates and better terms than borrowers would be able to find on their own. Overall, however, many clients as is seen from our reviews, tell us that the fee for our services was worth the payment for the time, lack of paperwork and stress we remove from the process. Obtaining a mortgage whether a first time buyer or an experienced portfolio landlord can be a stressful time, as our clients our goal is to remove this for you and make the process as streamlined as possible.
  • What is a first time buyer
    A first time buyer is a person who is purchasing a home for the first time. Many lenders offer special programs and incentives for first time homebuyers, such as a smaller deposit, fee incentives and better mortgage rates. In addition to this as a first time buyer you may be eligible to use your help 2 buy ISA's as part of your deposit. For first time buyers, the threshold for paying stamp duty is much higher. There are exclusions from being a first time buyer to be mindful off, typically for instance if you are buying with a partner who has owned a home before then you would normally not qualify for these benefits.
  • First Time Buyer in Scotland
    We offer a wide range of services to help first-time buyers in Scotland secure a mortgage. Our highly experienced mortgage brokers will work closely with you to understand your unique circumstances and help you navigate the complex mortgage application process. We can advise you on the most suitable mortgage product to fit your needs, provide you with expert guidance on how to improve your credit score, and help you understand how much you can borrow. Additionally, we offer support with the paperwork involved in the mortgage application process. Our goal is to make the process as stress-free as possible while ensuring that you secure the right mortgage product at the right rate for you. We understand that buying your first home can feel daunting, which is why our approach is focused on providing personalised guidance and support throughout the process. With our expert knowledge of the Scottish property market and close relationships with lenders, we are ideally placed to help you secure the right mortgage for your needs. We are committed to providing transparent advice and excellent customer service, and we work hard to ensure that our clients come away feeling confident and ready to take the next steps in their homeownership journey.
  • Do first time buyers pay stamp duty?
    Yes and no. Stamp duty is a tax paid on residential property purchases over a certain value in England and Northern Ireland. At present you can buy your first home up to a value of £425,000 without paying any stamp duty on this. As the rates of stamp duty can change before proceeding we would always recommend you visit the governent site to calculate your own stamp duty on potential properties to avoid incurring large unexpected bills later down the house buying process https://www.gov.uk/stamp-duty-land-tax/residential-property-rates
  • Does a mortgage decision in principle guarantee a mortgage?
    No, a mortgage decision in principle is not a guarantee that a mortgage will be approved by the lender. A decision in principle, also known as a mortgage promise or agreement in principle, is a preliminary assessment of whether someone is likely to be approved for a mortgage, based on their income, credit score, and other financial factors. The assessment is typically based on a soft credit check, which does not leave a footprint on the person's credit report. While a decision in principle can be useful for indicating a person's borrowing power and giving them an idea of what they can afford, it is not a formal offer of a loan. A full mortgage application would still need to be made and assessed by the mortgage lender, who would consider additional information such as the property being purchased, the deposit amount, and the borrower's employment status. It's important to note that the decision in principle is not a guarantee of the interest rate, as this will depend on the lender's assessment of the full mortgage application. Additionally, a decision in principle is typically valid for a limited period of time, and if too much time has passed between the decision in principle and the full application, the lender may need to reassess the borrower's financial situation.
  • Do First Time Buyers Pay Stamp Duty in Scotland?
    In Scotland, first time buyers are exempt from paying the Land and Buildings Transaction Tax (LBTT) on properties up to £175,000. However, if the property is over £175,000, first time buyers will be required to pay LBTT on the portion of the property price that exceeds £175,000. We can help first time buyers understand their stamp duty obligations and guide you through the process of purchasing their first home in Scotland. We will provide personalised advice and support to ensure that first time buyers have a smooth and stress-free home buying experience.
  • What are the eligibility criteria for applying for a UK tracker mortgage?
    To be eligible for a tracker mortgage, you generally need to meet certain criteria. This includes having a good credit score, a stable income, and the ability to provide a deposit of at least 5% of the property value. The lender will assess your income and outgoings to determine how much they are willing to lend you. You'll need to provide documents such as payslips, bank statements, and proof of ID and address. The terms and conditions of each UK tracker mortgage may differ, and lenders may also consider factors such as age, employment status, and the property type and location.
  • Can a Tracker Mortgage Be Transferred to Another Property?
    Yes, you can transfer a tracker mortgage to another property. It's called 'porting'. You'll need to meet your lender's criteria for the new property and may have to pay a fee, so it's worth checking. Please refer to our homemover page for more information on porting.
  • What Happens to My Tracker Mortgage if the Bank of England Base Rate Drops to Zero?
    If the Bank of England base rate drops to zero, your tracker mortgage rate will also decrease. You'll see a reduction in your monthly payments as they're directly linked to the base rate, remember however that your mortgage tracker may have a collar linked to it. A mortgage tracker collar is a limit below which your rate will not decrease regardless of what happens to the Bank of England base rate. Full details on this can be found within our Tracker Mortgage Page
  • How Does the Early Repayment Charge Work With a UK Tracker Mortgage?
    If you decide to repay your tracker mortgage early, you'll usually face an early repayment charge. It's typically a percentage of the loan you're repaying, but the exact amount can vary based on your lender's terms, remember some lenders tracker products are available with no early repayment charges.
  • What happens to my tracker mortgage if the Bank of England base rate changes?
    Tracker mortgages are directly tied to the Bank of England (BoE) base rate, meaning that any changes to the base rate will affect the interest rate on your mortgage. If the BoE base rate increases, the interest rate on your tracker mortgage will also increase, which means that your monthly payments will also increase. On the other hand, if the BoE base rate decreases, so too will the interest rate on your tracker mortgage, ultimately resulting in lower monthly payments. For example, if you have a tracker mortgage with an interest rate that is set at 2% above the BoE base rate, which lets say is 3%, then you would pay a rate of 5%. Let's pretend the BoE base rate increases to 4%, you would now pay a rate of 6%, as the example product above is BoE base rate + 2% Conversely, if the BoE base rate decreased from 3% to 2%, your interest rate would decrease to 4%, as the product example above is BoE base rate + 2%

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