What is a variable rate mortgage?

How variable rates differ from fixed rates

When you take out a mortgage, you’ll be able to choose a fixed or variable rate mortgage.

Fixed mortgages have interest rates that are set for a period of time. They let you know exactly what you’ll pay each month for the whole fixed period.

With a variable rate mortgage, the interest rate can change at any point of the mortgage. This means your monthly payments could change.

Variable rates can be cheaper than fixed

Variable rates are not a bad option. If rates drop, they can be cheaper than similar deals on a fixed rate.

Most variable products have a ‘discounted’ or low-rate period for a set duration of time. You can take out a new deal like a fixed rate mortgage when this period ends.

Be careful of Standard Variable Rates (SVR). They often have higher rates that lenders use when a fixed rate, tracker, or discount detail ends.

It can be cheaper to stay on this rate as there is no Early Repayment Charge. If you're not sure, look into your options before you’re moved onto a SVR rate.

Types of variable rate mortgages

There's more than one kind of variable rate mortgage.

You can get either a:

  • Tracker mortgage

  • Standard variable rate (SVR) mortgage

  • Discounted variable rate mortgage

With tracker mortgages, the interest your lender charges is the Bank of England base rate plus or minus a certain percentage.

Products usually last 2 or 5 years, but you can also get three year, 10 year and ‘lifetime trackers’. These track the base rate for the lifetime of the mortgage.

Your tracker mortgage could include a minimum interest rate or 'collar'. The interest rate will never fall below this so the lender will always make some profit. 

Some lenders will also have a cap to restrict the maximum rate.

Some tracker mortgages have no Early Repayment Charges (ERCs). This allows you to make larger overpayments or repay the mortgage in full without being charged a fee. 

More tracker deals let you do this, but some fixed deals will too.

Every lender has its own Standard Variable Rate (SVR). 

People tend not to choose SVRs as they are often high.

The average SVR reached a high of 5% in July 2022. ¹

Customers often roll onto an SVR after their fixed rate, tracker or discount period ends.

These mortgages are set at a certain amount less than the lender’s SVR.

A discounted variable rate changes if the lender’s SVR does.

Unlike other variable rates, discount variable rates track the lender’s SVR instead of the Bank of England base rate. This means the lender could change the rate 

Most lenders only change the SVR if the Bank of England base rate rises or falls.

Discount mortgage rates are often fixed for a term. This term can last 2, 3, or 5 years, for example.

Advantages of variable rate mortgages

With a variable rate mortgage, you can take advantage of some of the lowest rate deals on the market. But, you would risk some uncertainty about your future rate.

The Bank of England base rate stayed at 0.5% from 2009 to 2015, before falling to 0.25% in 2016. It then dropped to a low of 0.1% in 2020, in response to the Coronavirus pandemic.

In 2022 the Bank of England gradually started to increase the base rate. As of 3 November 2022 it stands at a high of 3%.

If the base rate increases or falls, your mortgage rate will change accordingly.

Disadvantages of variable rate mortgages

If the bank rate or SVR rises then your monthly repayments will increase too.

There’s no guarantee on what amount you’ll pay every month for your repayments.

You might need to pay an Early Repayment Charge on some tracker rate mortgages.

What to be aware of when coming to the end of your initial term

Once your initial term is over, you're likely to end up paying the lender's SVR.

If you’ve signed up to Trussle, we’ll let you know when it makes sense to think about switching. This way you can avoid paying the SVR, if you choose to look at other deals.

If you use Trussle to find a mortgage, we’ll look at both variable and fixed rate options to recommend a deal. We'll base the deal on what we think would best suit your needs.

Where to go from here

Fixed rates guide

Learn about fixed rates and how they work

Read our guide

First time buyer

Read our handy guide for first time buyers

Read our guide

Bank of England base rate guide

Find out more about the Bank of England base rate

Read our guide
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