There are three main subtypes worth knowing about which may be able to provide more risk-averse borrowers with another option aside from a fixed rate deal.
This type of mortgage comes with a rate that moves up and down in line with changes to the Bank of England base rate (so it tracks this external rate), meaning that your payments can fluctuate based on a measure that may be a bit more easy to predict than providers’ internal decisions. So, if you believe that base rate is due to decrease in the next year or so, this might be a good choice. Of course, if you’re interested in a tracker mortgage with a long term, base rate will become increasingly harder to predict.
Some tracker rate mortgages will come with a collar or cap. A mortgage collar refers to a minimum set rate that your mortgage won’t be able to go under, while a mortgage cap is a maximum ‘ceiling’ rate. The best tracker mortgages for the more risk-averse borrower may be those with a cap, rather than a collar, but unfortunately capped mortgages tend to be very rare. On the other hand, because you’re taking a bigger risk, mortgages with a collar or no outer limits at all will likely come with lower rates than those few mortgages that have a cap.
Standard variable rate mortgage
Most lenders offer a standard variable rate (SVR). The fees associated with taking out, or remortgaging from, an SVR mortgage are often relatively low. This is because many have low setup costs and no early repayment charges. Unlike a tracker, an SVR is set arbitrarily by each individual lender, so your rate may increase or decrease at any time.
The SVR tends to be the interest rate you fall back on after your initial mortgage deal ends, when it comes to both fixed and variable rate deals. As such, these deals will generally have higher rates than most other mortgage types in the market.
Discounted variable rate mortgage
Discounted variable mortgages are another form of variable rate mortgage, whereby the lender offers a discount on a certain rate, most commonly the lender’s SVR, in the form of an introductory term. You can find these in the comparison chart for discounted variable mortgages. For example a lender offering a 2% discount on its SVR of 4.50%, would charge 2.50% to the borrower.