With the current uncertainty around mortgage rates, we’ve expanded our range to introduce a new 2-year variable rate Tracker mortgage.
Our Tracker mortgage tracks the market which means that rather than paying a fixed interest rate, the rate you pay is variable and can change on a quarterly basis.
The main difference is that your interest rate, and your monthly mortgage payments, can go up or down.
If you don’t want to fix your mortgage rate at today’s rates, our new 2-year variable rate Tracker mortgage could be for you. Now, you have the option of choosing a mortgage with a variable interest rate that tracks the market. The variable rate Tracker mortgage is available for residential and buy to let properties, and your broker can apply regardless of whether you’re self-employed or employed.
How it works
Unlike a Fixed rate mortgage, our new 2-year variable rate Tracker mortgage has a variable interest rate which is linked to our variable rate, Kensington Standard Rate (KSR), plus a fixed margin. The KSR reflects the Bank of England base rate, so with a variable rate Tracker mortgage, if the Bank of England base rate changes, your monthly payments are likely to increase or decrease.
After the two years, your mortgage will move to your reversionary rate (KSR plus a higher fixed margin) unless you remortgage or switch to a new variable Tracker if one is available, or a fixed rate mortgage. Alternatively, you can remortgage to another lender.
What is the Bank of England base rate?
The Bank of England base rate is the interest rate set by the Bank of England’s Monetary Policy Committee (MPC). The current rate is published by the Bank of England at https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp. It is the rate the Bank of England charges other banks and other lenders when they borrow money, so it influences the interest rates that many lenders charge customers to borrow money for things like mortgages and loans.
The interest rate we use for our 2-year variable rate Tracker mortgage
Our Tracker mortgage is based on the Kensington Standard Rate (KSR) which is a variable interest rate set by us. It is based on the Bank of England base rate (BBR) plus an adjustment of between 0% (zero) and 1%. As our rate is based on the BBR, it means that when the Bank’s rate goes up, our variable rate is likely to go up, and when the Bank’s rate goes down, our variable rate is likely to go down too.
We review the Kensington Standard Rate (KSR) four times a year on the 10th of March, June, September and December (or the immediately preceding working day if the relevant date does not fall on a working day.) The current value of KSR is published on our website under Rates, fees and charges.
If you’ve never had a tracker mortgage before, you’re likely to have questions so we recommend talking to your broker so that you fully understand the pros and cons of our variable rate Tracker mortgage. In the meantime, we’ve put together answers to some of our most frequently asked questions.
At Kensington, we’re committed to providing people with a wide range of mortgage solutions that meet different needs at different life stages. With the volatile economy impacting interest rates, our variable rate Tracker mortgage will give you another option when it comes to choosing the right product for your circumstances if you aren’t looking to fix your mortgage at the current time.
However, it is important to bear in mind that with a variable rate tracker, your mortgage payments could go up as well as down so you may want to speak to your broker to understand the pros and cons of our variable rate Tracker vs a fixed rate mortgage based on your particular circumstances.
The Kensington Standard Rate is a variable interest rate, set by us and reviewed on a quarterly basis. The KSR is based on the Bank of England base rate (BBR) plus an adjustment of between 0% (zero) and 1% to take account of our costs in funding a mortgage loan. Our KSR will not be set lower than the BBR or higher than 1% above the BBR at the time we set the rate.
If the Bank of England base rate is lower than 0% at the time we set the Kensington Standard Rate, we shall consider the BBR to be 0% (zero).
If the interest rate is fixed, it will not increase or decrease during the fixed rate period of the mortgage even when the market rates change. Depending on the loan type, the mortgage could have an initial Fixed interest rate period of 2, 3, 5, 10 years or in the case of our Flexi Fixed for Term mortgage it will be fixed for the full term of the mortgage (anything from 11 to 40 years). This means that you know how much your monthly repayments will be during the fixed period.
With a variable interest rate, the rate you pay will increase or decrease in line with the increase or decrease in rate that it is tracking. Where the rate includes a fixed margin, the amount of the margin will not change.
With the current market volatility, it is difficult for us to predict how the Bank of England base rate (BBR) and the Kensington Standard Rate (KSR) may change over time. However, it is important to note that any changes could result in your monthly payments going up or down so you may want to speak to your broker to understand the pros and cons of our variable rate Tracker vs a fixed rate mortgage based on your particular circumstances.
Yes, as we review the Kensington Standard Rate (KSR) on a quarterly basis, your mortgage payments could change eight times, either increasing or decreasing, over the two-year period of the variable rate Tracker mortgage.
Due to the difference in timing of BBR and KSR rate changes, KSR can temporarily be lower than BBR. Given this, when reviewing illustrations with your broker it is important to remember that over the life of the loan KSR will be equal to or higher than BBR. However, as explained above, at the point of reset KSR will never be more than 1% above BBR.
Please also remember that because KSR could change in the period between submission of your application, receipt of your mortgage offer and the date on which you complete the mortgage, the rate you will pay at the start of the mortgage could differ from the rate quoted in the original illustration from your broker or the offer letter you have received from us. The rate you pay will be calculated based on the value of KSR on the date of completion plus the fixed margin you have agreed to pay.
You can use our interest rate change calculator to get an idea of how an interest rate change could affect your monthly mortgage payments.
Any changes to your monthly mortgage payment will take effect from the 1st day of the following month after we review the Kensington Standard Rate (KSR), which takes place on a quarterly basis on the 10th day of the relevant month. We currently review our rates on the 10th of March, 10th June, 10th September and 10th December (or the immediately preceding working day if the relevant date does not fall on a working day.)
For new mortgage applications the KSR rate reset takes immediate effect
on our systems and documentation (normally the 10th of the month or if
this falls on a weekend, the previous working day) but after completion
the rate change applies to the customer’s mortgage payment from 1st of
the following month.
Once your mortgage has started, we will write to you at least 10 working days before your next payment is due to notify you of any changes to your payment amount following an adjustment to the Kensington Standard Rate (KSR). We also publish the latest KSR on our customer website.
If you meet the eligibility requirements for our 2-year variable rate Tracker product, your offer letter will include an illustration of how your monthly mortgage payment could increase in a higher interest rate environment.
As an indication, an example of a 1.1% increase on a £200,000 repayment mortgage over 25 years at an initial interest rate of 6%, which then increased to 7.1%, would be an additional £138 per month.
If you would like to change mortgage products before the end of the variable rate term, you should seek advice from your broker about remortgaging to a new Kensington product or one from an alternative lender.
Yes, if you change your mortgage product before the end of the two-year variable term or before you become eligible for a product transfer, you may be liable to pay an ERC which would be 1% of the total outstanding mortgage amount.
If you are eligible for a new variable rate Tracker product at the end of 2-year variable rate tracker period, and a Tracker mortgage is available at that time, we will notify you and your broker with your options four months in advance of your 2-year variable rate tracker period coming to an end. The letter that we send to you will include a link to our customer Product Transfer portal where you will be able to see all the new mortgage options that are available to you. This could include both variable rate and fixed rate mortgage options.
A reversionary rate is the interest rate that your mortgage will revert to at the end of the 2-year variable rate tracker period. It is a variable rate which you should expect to be higher than the rate you pay during your 2-year variable rate tracker period.
Yes, the initial variable rate for the 2-year Tracker mortgage will usually be cheaper than our equivalent 2-year fixed rate mortgage. However, it is important to remember that over the course of the 2-year variable rate tracker period, the interest rate, and therefore your monthly mortgage payment, could increase as well as decrease.
If market interest rates rise, it is possible that the variable rate could rise above the Kensington 2-year fixed rate mortgage at some point during the 2-year period. Whether the total cost over 2 years of the 2-year variable Tracker mortgage is more or less than the 2-year fixed rate mortgage will depend on how market interest rates move.
The variable rate Tracker mortgage is not portable so if you decide to move home before the end of the 2-year term, your broker will need to apply for a new mortgage.
If you are eligible for a variable rate Tracker mortgage, it will be shown as one of the options available to you when your product transfer window opens which is four months before the end of the fixed rate period of your existing product. The letter that we send to you will include a link to our customer Product Switch portal where you will be able to see the new mortgage options that are available to you.