A guide to variable rate mortgages
Variable rate mortgages encompass any mortgage where the interest rate can change during the term. This includes standard variable rates, discount rates, and tracker rates. This guide focuses on SVR and discount rate mortgages, explaining how they work, when they make sense, and how to get the best deal.
In this guide
What is a variable rate mortgage?
A variable rate mortgage is any mortgage where the interest rate is not fixed for the full term. Your rate and monthly payments can change, either because your lender decides to adjust their SVR or because a benchmark rate like the Bank of England base rate moves.
The main types of variable rate mortgage in the UK are the standard variable rate, which every lender sets independently; discount rate mortgages, which offer a set reduction below the SVR; and tracker mortgages, which follow the Bank of England base rate directly. Each behaves differently and suits different borrowers.
Standard variable rate: the default rate
Every mortgage lender has a standard variable rate. It’s the rate you’ll pay once any introductory deal — whether fixed, tracker, or discount — comes to an end. SVRs are set by the lender and can be changed at any time, for any reason, although in practice they tend to move broadly in line with the Bank of England base rate.
SVRs are almost always higher than introductory rates. As of recent years, typical SVRs have ranged from 6% to over 8%, while introductory deals are usually several percentage points lower. Staying on an SVR for any length of time can cost you thousands of pounds in unnecessary interest.
The key takeaway is that almost no borrower should stay on their lender’s SVR by choice. If your deal has expired and you’re on an SVR, you should consider remortgaging to a new deal as soon as possible.
Discount rate mortgages
A discount rate mortgage charges a set amount below the lender’s SVR for an introductory period, typically two to five years. For example, if the SVR is 7.5% and you have a 2% discount, your rate would be 5.5%.
The important thing to understand is that because the discount is applied to the SVR, and the SVR can change at any time, your rate can still move even during the discount period. If the lender raises their SVR by 0.5%, your discounted rate also rises by 0.5%.
Discount mortgages can offer lower initial rates than fixed deals and sometimes come with fewer early repayment charges, giving you more flexibility to switch or overpay.
Variable rate vs fixed rate: which is better?
Neither is universally better. Fixed rates provide certainty and are ideal if you need predictable payments. Variable rates can be cheaper but carry the risk of your payments increasing. The best choice depends on your financial situation, risk tolerance, and the current interest rate environment.
Many borrowers alternate between fixed and variable rates over the life of their mortgage, depending on market conditions. A mortgage adviser can help you assess which option makes more sense at any given time.
How to get the best variable rate deal
If you’re considering a variable rate mortgage, compare deals across the whole market rather than just looking at your current lender. Pay attention to the margin above the base rate or the discount below the SVR, not just the headline rate. Use our repayment calculator to model different rates, and check for early repayment charges and understand when they apply.
At Clearview Mortgage Solutions, our advisers compare variable rate deals across 90+ lenders to find the best option for your situation. Contact us for a free, no-obligation chat about your mortgage options.
Related guides
More guides in our variable rate mortgage hub.
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