Often referred to as a “base rate tracker” these mortgages follow the Bank of England Base Rate.  The base rate is controlled by the bank of England and they meet every month to discuss fiscal policy (details at www.bankofengland.co.uk).

There will normally be a difference in the interest rate charged to you the borrow and the rate set by the Bank of England, this is often call the differential.  For example if you take a base plus 2% tracker then you will pay 2% above the Bank of England rate.  As of 20th April 2012 the Bank of England rate is 0.5% so using this example you will pay 2.5% interest on your mortgage.

There are some tracker deals available where there is a preferential rate for the early years and in this situation it would be common for the lender to charge exit penalties (early redemption charges).

Another common tracker deal is a lifetime tracker where you would pay the same differential over the Base rate for the life of your mortgage.