Contractor Tracker Mortgages

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Contractor Tracker Mortgages – how do they work?

As a contractor exploring your mortgage options it’s important to understand how different products work and whether they could be a good choice for you. Here, we look at tracker  mortgages to help you narrow down your choices. 

What is a Tracker mortgage?

A tracker is a variable rate mortgage – which means that the interest rate you pay can increase or decrease at any time. There are various forms of variable rate mortgage; the alternative being fixed rate mortgages where the interest rate cannot change.

With a tracker, the interest rate you pay ‘tracks’ an economic indicator – usually the Bank of England base rate. Typically, these mortgages track at around 1% above the base rate. So if the base rate rises by 0.5%, your mortgage rate will increase by 0.5%.

Tracker mortgages usually offer a better rate than a fixed rate deal – because there is the risk that the rate will change. A rate increase means that your monthly mortgage repayment will go up.

Is a Tracker Mortgage the same as a discounted rate mortgage?

Tracker and discounted rate mortgages work in broadly the same way, but the main difference is that a discounted rate mortgage doesn’t follow the Bank of England base rate. 

A discounted rate mortgage follows the lender’s own Standard Variable Rate – which the lender controls. 

So a discounted rate mortgage gives you 1-2% off the standard rate for that lender, but they can choose when and how much to increase or decrease the rate. Discounted rate mortgages generally have higher rates than a tracker rate mortgage.

When is it best to choose a tracker mortgage?

Tracker mortgages can offer the lowest interest rates in the marketplace which could mean low monthly repayments. But because rates could increase at any time, they only suit people that can comfortably afford for their payments to go up. 

If you are on a tight budget, it is usually better to choose a fixed rate mortgage so that you always know how much your monthly repayment will be. First Time Buyers often choose a fixed rate deal for peace of mind.

People generally choose tracker mortgages when interest rates are low and are not expected to change. Some lenders offer a capped tracker rate, so that interest rates cannot rise above a certain level.

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Is a Fixed or Tracker mortgage best for a contractor?

Whether you choose a fixed rate or a tracker depends on your financial situation and your attitude to risk. 

Use a mortgage calculator to assess the potential impact of interest rate rises. As an example, for a £200,000 mortgage currently at 2.5%, a 0.5% interest rate rise would increase your mortgage payments from £922 to £974. Remember that interest rates could continue to rise beyond that too. 

Both fixed rate and tracker mortgages usually run for a two, three or five year period, and both will have early repayment charges.

Are Tracker rates available for contractors looking to Buy to Let?

Buy to Let mortgages are available in all the main types of mortgage – tracker, discounted rate, fixed rate etc. Contractors can apply for any Buy to Let mortgage and will be accepted as long as they meet the mortgage criteria. 

The key is to make sure you find the right banks or building societies that will accept your specific circumstances, which is where a Mortgage Advisor can help you.

How can a Mortgage Broker help?

Mortgage Brokers like Mint are here to take the stress out of choosing a mortgage deal. We’ll explore your situation and talk you through how different mortgage types work. 

Contractor mortgages are a speciality, as we understand the challenges and opportunities of contracting and how to find a suitable lender. We will explore mortgage products from across the market, including all the high street banks and specialist lenders.

We’ll help you with the mortgage application and make sure you have all the documents you need to prove your income as a contractor and maximise your borrowing potential. 


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