Types of variable rate mortgages
With a tracker mortgage, the variable interest rate moves along with the underlying movements of The Bank of England base rate.
This is currently 0.75% (as of August 2018), and was until fairly recently at a historic low of 0.25% for over a decade. In the past, it’s been as high as 17%.
Bear in mind that the mortgage tracker rate on your product will typically be set at 1-2 percentage points above the underlying tracker to allow a margin of profit for the lender.
Additionally, your tracker mortgage could include a minimum interest rate, or 'collar', below which the interest rate will never fall. Again, this preserves margins for the lender.
Standard Variable Rate (SVR) mortgages
Every mortgage lender will have its own Standard Variable Rate, or SVR. This will change whenever the lender chooses to change it.
Usually, the SVR is linked to a market indicator, such as The Bank of England’s interest rate, but this isn't always the case and rates can vary widely between lenders and change freely. They tend not to be competitive compared to the rest of the market.
When you take out a new mortgage product you may benefit from an initial special deal and then revert to the SVR when the deal ends, depending on the lender. Although the SVR is less competitive, it will generally not tie you in - meaning that you can seek out a new deal to switch for a better rate when you’re ready and pay the SVR in the meantime.
Discounted variable rate mortgages
These products are typically offered when a customer first takes out a mortgage, and the interest rate is offered at a discount versus the lender's SVR for a promotional period of time.
This could be a 1.5% discount against the SVR, with the repayment then changing as the SVR does. This fixed term could last for 2-3 years, although some products may offer a longer period of time.