Compare variable-rate mortgages

Compare variable-rate mortgages, including tracker and discount deals. The interest rates on these mortgages can rise and fall, with some tracking changes in the Bank of England base rate.

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What is a variable-rate mortgage?

A variable rate mortgage is one where the amount of interest you are charged can go up and down. This means your monthly repayments may be different each month. They’re an alternative to fixed-rate mortgages, where your interest charge is guaranteed to stay the same for a period of time, usually one, two, three, five or 10 years.

There are three main types of variable rates: Standard Variable Rates (SVRs), discount-rate mortgages and tracker mortgages. The type you have will determine how your interest rate changes over time. 

For instance, tracker mortgage rates are usually linked to the Bank of England’s base rate. SVRs are set by the mortgage provider, who can decide how and when to change them. Discounted rates are often based on the SVR, but are cheaper. 

What is SVR?

SVR stands for standard variable rate. This is set by your mortgage lender, and different companies have different rates. The bank or building society decides how and when to put the rate up or down – based on a number of factors.

These rates are not explicitly linked to the Bank of England’s base rate, although they might be influenced by it. Other factors that might contribute to the provider changing your interest rate include the lender’s cost of borrowing, regulation and internal targets.

If you took out a fixed or tracker deal that has come to an end, you are usually switched onto the lender’s SVR. Often these are the most expensive options available, so it can be worth switching to another offer instead. However, there are benefits to SVRs including flexibility and the ability to overpay your mortgage.

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What are the different types of variable-rate mortgages?

Tracker mortgages

Tracker mortgages are linked to an economic indicator such as the Bank of England base rate. As the indicator goes up and down, your mortgage interest rate will follow it. Often the rate is a specific percentage over the indicator, for instance, it could be the base rate plus a set percentage. Most tracker mortgage deals last between two to five years, but you can find longer offers.

SVR mortgages

Each lender sets its own standard variable rate (SVR) for mortgages, which is typically between 2% and 5% above the Bank of England’s base rate. However, the SVR is set at the lender’s discretion and can go up or down at any time for a number of reasons. This type of mortgage can be very expensive and, importantly, this is the rate most borrowers will be put on when a mortgage deal ends.

Discount rate mortgages

Discount variable-rate mortgages set an interest rate that is a specific percentage less than the lender’s SVR. The interest rate will go up and down when the SVR does, meaning your monthly repayments change accordingly. Deals are usually for a set period, for instance between two and five years, but you can get lifetime discount mortgages.

Advantages of standard variable rate mortgages

  • No penalties if you overpay

  • No early exit fees

The main advantage of a standard variable rate mortgage is flexibility. Other types of mortgages usually have limits on how much you can overpay without incurring penalties. With an SVR, you can pay off as much as you like fee-free. This is useful if you want to use spare cash to pay off your mortgage more quickly. 

SVRs also allow you to switch mortgage providers or deals without facing an early exit fee, which can be helpful if you’re planning to move soon.

Disadvantages of standard variable rate mortgages

  • Expensive

  • Unpredictable

The main disadvantage of SVRs is that they’re often the most expensive deals available. Over the lifetime of a mortgage, this can mean paying thousands of pounds more than you need in interest fees. 

Another con is that because the lender decides how and when the SVR is changed, it can be very hard to predict what your future mortgage repayments might be. You could find your monthly payments rise sharply with very little warning. 

What is the difference between variable rates and fixed rates?

With a variable-rate mortgage, your interest rate can go up and down over time and your monthly repayments will change too. They’re usually cheaper than fixed-rate mortgages at the outset but can become more expensive when rates rise.

A fixed-rate mortgage guarantees a set interest rate for a fixed period. This means your repayments stay the same as well. They’re usually more expensive than variable deals, but you get the security of knowing that your payments won’t increase if your lender’s variable rate rises.

Speak to a mortgage adviser if you are unsure what mortgage type is right for you.

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