Can someone enlighten me about tracker mortgages?

[MrsFogi]

I know I am being dense but humour me....does a tracker just go up and down like a variable rate? Can someone give me an idiot's guide?

Trackers are usually contractually obliged to follow the bank of England rate or similar, with an agreed add-on.

Variable are what they say on the tin - the bank can vary them according to whim. Hence the furore when the bank of England lowered their rate but many banks chose not to follow suit.

ALthough some trackers are capped at one or both ends - ie they can't fall below a certain rate, and/or they can't rise above a certain rate.

you're welcome btw

Sorry haven't been back for a while tyv - thank you .

sorry if it sounded a bit chippy, I've just had a spate of threads recently where the op has asked for loads of info and then never come back, so have got rather cheesed off!

if you want any other info just say - we have a tracker and it's worked very well for us recently but there are not such good rates on offer at the moment.

When we got ours the rate we were given was 0.5% above bank of England rate. Now I think the best you can find is about 1.5% above BoE. Which is obviously ok for the moment but might be rather painful if rates rise again.

The First Direct tracker at BoE +2.5pc capped at 5pc looks like the best of both worlds but you can only borrow 60pc of the property value for this, I think. or is it 75pc? Check moneysupermarket.com

HSBC has a 2.75pc (BoE plus 2.25pc) tracker with no tie or penalty. Useful not to be tied in as it is unclear whether the traker margins (2.25pc) will continue to rise as they have done recently. I think that they could fall a bit as economy recovers as lending becomes more competitive in the next two years or so. But don't expect tracker margins to fall back to 50bps.

theyoungvisitor - have you seen a 1.5pc tracker recently? If you have then please point me in that direction as I am looking at these now. many thanks

Tdiddy, sorry I just looked and you're quite right, they are all higher now. I saw that rate a couple of months ago and hadn't checked since.

SO I missed another boat then. Darn. thanks though

MrsFogi - i would recommend that capped tracker @ FirstDirect if you are considering it. Otherwise the HSBC term tracker one that has no tie in.

Sorry I think I'm being really stupid here - why am I better with a tracker with no cap than with my bank's simple floating rate? If I understand correctly e.g. the HSBC one will be 2.75pc above the BoE rate whereas the HSBC standard floating currently has a smaller margin above the base rate.

Good question. The HSBC traker is a term tracker i.e. it tracks for the life of the mortgage. The 2.49 rate reverts to the std variable rate (SVR) (currently 3.49) after two years. So they are offering a two years discount but generally SVRs are higher than trackers. Key point though is that with SVRs the rate is entirely at the discretion of the lender as opposed to trackers.

As we say in the credit crunch the lenders hiked the SVRs and those who were on trackers (typically BoE + 0.5pc) are now well and truly in the money. Unfortunately, I went for a 5pc fix and I am now looking considering paying the penalty to get out of it and move to a capped tracker.