The Tracker Mortgage

So, exactly what are all those self-satisfied smiles about?

A tracker mortgage is effectively anchored at a fixed percentage value above the Bank of England base rate. As the base rate fluctuates, so does the tracker mortgage rate. So, as the base rate drops (as is currently the case), the rate of the tracker mortgage does too.

It is unsurprising, then, that many people with tracker mortgages can't help but act like the cat that got the cream in the current economic climate, as they are one of the few groups of people to directly benefit from the 'credit crunch' (at least in this one aspect of their financial lives). The Bank of England has recently cut interest rates by half a percent to 1.5%, the lowest level in the bank's 315-year history, as it continues efforts to encourage a reversal in the economic downturn. This half a percentage point reduction brings interest rates below 2% for the first time since the Bank of England was founded in 1694. So, someone with a tracker mortgage pinned at 1% above the base rate could now be paying as little as 2.5% interest.

It's not all good news for the tracker mortgage customers, however. Some banks and building societies have frozen their tracker mortgage rates so they can't fall any lower. This restriction preventing a tracker mortgage from falling to such a point as to be detrimental to the lender in question is referred to as a 'collar' and, until recently, was little more than a minor curiosity tucked away in the small print. Present circumstances have forced lenders to, quite legitimately, fall back on this small print, much to the chagrin of many tracker mortgage customers.

Irrespective of this quibble over 'collars', the enthusiasm with which tracker mortgage customers have been broadcasting their good fortune is likely to have a greater impact upon the uptake of tracker mortgages in the future than any amount of marketing, advertising and public relations.