housing tracker

How well do you know the money market? A tracker rate mortgage has a variable rate, usually a set percentage above or below the Bank of England's base rate. The arrangement is for a specified period of time, generally the first few years of your mortgage. Your monthly payments will move up and down according to the fluctuations of the base rate.

One of the advantages of a tracker is that your interest rate is ‘tied' to the Bank of England's, not your lender's SVR. This means that your rate is set by an independent body, and even if your lender decides to make a steep hike in their rates, you will be unaffected. If the base rate falls, you will benefit from a drop in monthly payments. However, by the same token if the market rises you will be subject to increases in your mortgage premiums.

Taking on a tracker mortgage depends on how you think the market is likely to change over the next few years. While none of us can foretell the future, you can use advice and research to make an informed opinion.

The current climate

For the past few years, the base rate has been set at a relatively low figure. This has kept mortgage rates particularly low, and has given the housing market a substantial boost. Some experts think it is bound to rise in the near future, although many fears of a resulting crash in the housing market have already proved groundless.

If you are fairly confident that the base rate will be kept low by the exchequer, you may want to take a gamble with a tracker mortgage. As with many of the other ‘discounted' and ‘special offer' mortgages, there may be heavy penalties incurred if you want to change mortgage or lender before the tie in term has expired, though trackers do tend to have less penalties than others.

The tracker type of borrower

A sound suggestion is to consider your own financial situation, rather than trying to predict the market. If you are fairly confident that you will be able to handle fluctuations in your mortgage repayments, then a tracker can be a worthwhile risk.

The Bank of England monitors the economic situation, and assesses financial forecasts. It will then usually adjust the interest rate accordingly - lowering the rate to encourage the market or raising it to moderate inflation. You can check the minutes of monthly meetings and find more information at www.bankofengland.co.uk