Buy-to-let tracker mortgages

Get a Molo BTL tracker mortgage for 2 or 5 years.

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Tracker products

Variable products that do not have a reversion rate for 2 and 5 years.

No early repayments

No early repayment changes for tracker. mortgages up to five years.

Flexible mortgages

A flexible buy to let mortgage that follow the market interest rates

Tracker Mortgage Guide

Explore the pro and cons of tracker mortgages so you can decide if they are the one for you.

What is a tracker mortgage?

 

A tracker mortgage is a type of variable rate mortgage where your interest payment would fluctuate based on the base rate the lender is using, which is usually the Bank of England’s base rate. 

 

Type of tracker mortgages:

 

Fixed-term tracker mortgages

A Fixed-term tracker mortgage is a type of mortgage that track for a fixed period of time, typically two, three, five or sometimes 10 years. After the fixed period you will then go onto the lenders variable rate, which is typically a higher rate. You can either choose to remain on the lenders variable rate or choose to remortgage elsewhere.

 

Lifetime tracker mortgages

A lifetime tracker mortgage will track throughout the entirety of the loan term, typically 25-35 years. Due to length of the mortgage term you wont have to keep paying early repayment charges to change deals, however it can be a challenge as you cannot predict interest rates rises and decreases.

How does tracker mortgage work?

 

A tracker mortgage typically works with an interest rate that is marginally lower or higher than the current Bank of England base rate, and increases and decreases when the interest rate changes by the Bank of England (BOE).

An example – Using 2.25% as an example BOE base rate – 

If you take out a tracker mortgage that is BOE base rate + 2% (4.25%), and the BOE reduce the base rate to 1%, your monthly payments will now be calculated at an interest rate of 3.25% (made up of the 2% lenders rate and the new 1.25% BOE rate), however if the BOE choose to increase the base rate to 2.5% then your mortgage payments will increase to reflect the new interest rate rise. 

 

What is a base-rate tracker mortgage?

 

A base-rate tracker mortgage is a tracker mortgage that typically tracks a base rate set by the Bank of England. The interest rate will then decrease or increase in line with the Bank of England base rate.

 

Is tracker mortgages better than fixed-term rate mortgages?

 

It depends on the market conditions your are in when reading this guide and your current circumstances.

A tracker mortgage can be better if you foresee a drop in interest rates and think you can capitalise on that as if you enter into a fixed rate mortgage, you are locked into the interest rate for a set period of time. Whereas with a tracker product, as soon as the base rate falls so will your monthly payments.

Another benefit is that you could set yourself a budget and if the base rate decreases, you could still pay within your budget each month and make overpayments to reduce the balance of the loan sooner, however be sure to keep within your early repayment allowance to prevent being charged.

All this being said, a fixed term rate is the bread and butter of mortgage products because they allow you to pay the same amount over a fixed period of time. Where interest rates are low and the forecasts show an increase in the base rate, you will still only pay the amount that you completed on, allowing you to be safeguarded from interest rate increases during your fixed period.

 

What happens when a fixed term comes to an end?

 

When your fixed terms comes to an end, you will go onto the lenders variable rate. This is usually higher than the initial product you completed on. The rate will still use a base rate sent by the Bank of England however the lender will be able to increase or decrease the rate if they choose.

 

What are ‘collars’ and ‘caps’?

 

A “collar” is the minimum amount of interest you must pay, regardgless of how low the Bank of England base rates falls. It protects the mortgage and lender if ever there are negative interest rates or rates that are too low they become unsustainable.

A “cap” is the maximum amount of interest you must pay. This mean if market conditions were to become volatile the cap will offer you some protection from your mortgage payments becoming sky high.

How to apply for a tracker mortgage?

 

You apply for a tracker mortgage in the same way as you would any mortgage. Make sure the lender you’re applying with offers a tracker.

 

Is the mortgage in principle part of the tracker mortgage application?

 

Yes, a mortgage in principle is part of any mortgage application. A mortgage in principle (sometimes called a decision in principle or agreement in principle) is simply a quick way to check if you can borrow with a specific lender without a full credit check.

How to choose the best tracker mortgage?

 

If you’re unsure if a tracker product is right for you, you should consult your broker or mortgage advisor about whether or not a tracker rate would be beneficial for you.

 

What are the benefits of tracker mortgages?

 

A tracker mortgage offers you an interest rate that can go down or up. Which means that when the base rate is low, a tracker can be cheaper than fixed rate deals. Tracker mortgages also often have no early repayment charges, making it easier to remortgage if you want to switch quickly or if the base rate changes suddenly. The biggest advantage to a tracker mortgage is that if you take out your mortgage when the BOE rate is high, as soon as the BOE rate begins to decrease then so will your monthly payments. This also means that the funds you have surplus from the lower monthly payments could be used to make lump sum payments to the mortgage, which will reduce your overall balance. 

 

What are the disadvantages of tracker mortgages?

 

The disadvantages of a tracker mortgage are the flip side of the benefits because you monthly payments can also go up when BOE rates increase this means that the loan that was once affordable now becomes too much for your finances to handle.  

 

Some lenders offer tracker mortgage with a “cap” as explained above, this will allow a maximum amount to be applied which protects you to a certain extent. The other disadvantage is that some lenders offer a “collar” type of tracker which sets a minimum amount of interest you must pay, however this does to protect you against your monthly payments from sky rocketing should the BOE increase the base rate significantly.  

 

Is tracker mortgage a good idea?

 

Not a lot is known about a tracker mortgage and whether they are a good idea for the applicant to choose. This is because it is not common in the market for a tracker mortgage to be an option for most lenders as they normally only offer a standard fixed rate mortgage term or interest only rate mortgage.

A tracker mortgage is where the interest rate charged on the mortgage is dependent on the Bank of England base rate, if this rate is low the applicant may not be paying as much as a normal fixed rate mortgage which would mean their monthly payments could be lower and more affordable which would mean taking out a tracker mortgage would be a good idea.

If the Bank of England base rate is high then the applicant could end up paying more each month than they would normally do on a standard fixed rate mortgage product. The Bank of England base rate can change quarterly which is why you will need to keep an eye on this throughout the year to see how this changes your mortgage payments.

 

Are tracker mortgages cheaper than fixed-rate mortgages?

 

Applicants normally ask are tracker mortgages cheaper than fixed rate mortgages and you will normally see that a fixed rate is higher than a tracker mortgage because the rate is locked at a higher percentage for a certain amount of time or the term of the product and this is so you will know exactly what your mortgage payment will be for a certain amount of time.

As mentioned above a tracker mortgage is reliant on the Bank of England base rate and whether this is high at the time or low. If the base rate is low then a tracker mortgage could be cheaper than a fixed rate but then at any point in the product life-time this could change if the base rate increases and could result in the tracker rate being more expensive than a fixed rate product.

Something to consider with a fixed rate mortgage is that this product will most likely come with ERC’s but some tracker rate products may not have ERC’s and you will need to check with the lender to see if the product has ERC’s as it could be easier to more or remortgage away from a tracker to a fixed rate when the tracker becomes more expensive than a fixed rate product and if you do not have ERC’s you would not need to worry about additional charges compared to a fixed rate product.

 

How long does a tracker mortgage last?

 

When looking at tracker mortgages and wanting to know “how long does a tracker mortgage last?”. You will need to look at the product guide of the specific lender you are looking to place the case with as they can last for 2 or 5 years depending on the specific product rate and code.

You may also see a product that is a lifetime tracker and this will be for the length of your mortgage term. This will mean that you will also have the same type of product for the length of your mortgage and will not be moved onto an SVR so will not need to do a product transfer. You will still need to keep an eye on the product though and the interest rate as this can change due to it being a tracker mortgage product.

Who is eligible to apply for a tracker mortgage?

 

In the UK, tracker mortgages are available for both individuals and company applications and can be viewed on any lenders website under their product guide, depending on the lender you may also be able to apply to them directly or you may need to apply via a broker and will need to check with the specific lender to see how you can apply.

To qualify for a tracker mate mortgage you will need to fit each lender’s criteria into account and make sure you qualify for the product before trying to apply for the mortgage, if you contact the lender you are considering they will be able to outline to you if you match their criteria and can apply for a tracker mortgage product.

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Get a Mortgage in Principle

Find out how much you might be able to borrow from us.

It’s free

Getting your Mortgage in Principle is free and shows how much we are able to lend you.

It won’t affect your credit score

We make a “soft” check with our credit agency partners, which means the results won’t impact your credit score.

It takes under 2mins

Get your Mortgage in Principle in less than two minutes, straight from your computer or phone.