What exactly is a tracker mortgage?

These mortgages are charged at a fixed margin above or below base rate and move up and down when base rate moves.
Typically a tracker mortgage will track the Bank of England’s base rate (technically referred to as the ‘Repo’ rate) but there are some mortgages that track LIBOR (London Interbank Offered Rate) instead.

The tracker mortgage will specify the margin that you will pay above - but sometimes below - the base rate and this margin is fixed at the outset, so your lender cannot increase the margin (as it can with standard variable rates) although obviously the underlying bank base rate or LIBOR may change. However you should also note that some tracker mortgages have a ‘floor’ which specifies the minimum interest rate that the mortgage will charge and some may have a ‘cap’ which specifies the maximum interest rate that the mortgage will charge.

The margin charged by a tracker mortgage above the underlying tracked rate will vary according to market and financial conditions. Indeed, since early Spring 2008, as the Loan-to-Value (LTV) percentage mortgage that you require increases so will the mortgage. Typically the keenest rates are only available for applicants seeking a mortgage for no more than 60% of the property value (this would be referred to as 60% LTV and means that the applicant either has a deposit, or existing equity in the property, of 40% or more). As the required LTV % increases so will the margin so if you need a 90% LTV mortgage you will probably have to pay substantially more than if you require 60% LTV.