Santander replaces mortgage SVR with base-rate tracker deal

New customers to Santander will now switch to a base-rate tracker deal when their term expires, instead of the bank's Standard Variable Rate.

The new tracker mortgage - known as the Follow-on Rate (FoR) - will fluctuate with the Bank of England base rate. If you got your mortgage on or after 23 January 2018, you'll revert to this rate once your initial deal has finished.

The current Standard Variable Rate (SVR) mortgage is still available for customers who took out their mortgage prior to this date.

We explain how this will affect your mortgage payments and how tracker mortgages work.

How does the Follow-on Rate tracker mortgage work?

The FoR is set at 3.25% above the Bank of England base rate.

The base rate currently stands at 0.5%,putting the FoR at 3.75%. When the base rate rises or falls, so will the FoR.

By comparison, Santander's existing SVR is set by the bank, so fluctuations can happen at any time - while the rate may be influenced by any base rate changes, it's not tied to it.

The existing SVR is currently at 4.74%, meaning the FoR offers better rates for the moment.

The FoR also has no early repayment charges, and there is no product fee.

• Find out more: tracker mortgages

What does the FoR mean for Santander customers?

All mortgage customers who joined on or after 23 January will transfer to the FoR once their initial deal period ends.

So if, for example, you took out a two year fixed rate deal over the last couple of days, you'll automatically move onto the FoR once the term is up in January 2020.

Those who took out a mortgage deal before 23 January will still transfer to the SVR - at the moment, this means they are paying more interest than that offered on the FoR. But as both rates will vary, this may not always be the case.

Existing customers have the option to switch from the SVR to the FoR if they wish. But once you've transferred you cannot return to the SVR. Your mortgage account must be up to date in order to make the switch.

If you're a customer currently on the SVR and don't wish to switch, then you don't have to do anything. Your mortgage will carry on as usual.

Will the Bank of England base rate go up?

The base rate is set by the Bank of England's monetary policy committee. Broadly speaking, changes are made to encourage spending, lending or borrowing, depending on the economic climate.

When the Bank of England wants to encourage spending to stimulate the economy, it tends to lower the base rate. If, on the other hand, price inflation is getting high, it generally raises the base rate.

• Find out more: the Bank of England base rate and your mortgage

Since the Financial Crisis in 2008, the base rate has remained low. The slight rise in November 2017 to 0.5% follows a historic low of 0.25%.

But if this increase signals an upward trend, it won't benefit those on a tracker mortgage.

The graph shows how the base rate has changed over the last 10 years.

Bank of England base rate vs CPI inflation

How does the Santander Follow-on Rate compare?

When we surveyed 5,002 mortgage customers in April 2016, we found around 11% of them had a tracker deal.

Here's how other deals compares to Santander's Follow-on Rate.

First-time buyers

For first-time buyers looking for a 90% tracker mortgage, Nationwide currently offers a tracker mortgage at 1.99% variable (base rate +1.49%) over two years. It reverts to the Standard Mortgage Rate of 3.99% variable (not linked to the base rate, with no upper limit or cap) for the remaining term of the mortgage, putting the APRC at 3.8%.

The table shows the lowest-rate 2-year tracker mortgages for first-time buyers available on an LTV of 90%. 

Home-movers

For home-movers wanting a 75% mortgage on their next property, HSBC's tracker mortgage has an initial rate of 1.34% variable for the first two years.

After that, it reverts to an Existing Borrowers Rate of 3.94% variable (not linked to base rate) for the remaining term of the mortgage (for an APRC of 3.6%).

See the table for the lowest rate 2-year tracker mortgages for home-movers on an LTV of 75%. 

To find out more, visit our full guide on tracker mortgages.