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Derin Clark

Derin Clark

Online Reporter
Published: 17/11/2021

The Bank of England continues to send signals that base rate may rise before the end of this year, which, if it does take place, will likely start impacting variable rate mortgages within weeks.

For many mortgage borrowers on a variable rate mortgage the best option may be to lock into a fixed rate deal while rates remain low. Some borrowers, however, may be tempted to remain on a variable rate mortgage, especially as some are currently offering lower rates than fixed deals.

What is a variable rate mortgage?

When a homeowner comes to the end of their fixed rate deal they will automatically be put on the lender’s standard variable rate (SVR). This rate is usually much higher than fixed rate deals, but is also often higher than other types of variable mortgages such as discounted variable and tracker mortgages. This is why most homeowners on their lender’s SVR are usually better off choosing another mortgage deal.

Alternatively, right now the most competitive discounted variable rates are lower than those available on fixed rate deals. For example, Progressive Building Society offers a two year discounted variable rate to homemovers at 0.51%, whereas its lowest fixed rate two year deal is 0.89%. Both these deals are only available to those located in Northern Ireland.

Discounted variable rates can not only be lower than their fixed rate counterparts, but can offer highly competitive rates for those with a higher deposit or who have less equity in their property. For example, Furness Building Society offers a two year discounted variable rate of 1.09% on a deal available to home movers with a 20% deposit. Meanwhile, the lowest fixed rate for those with an 80% deposit is 1.29% from Nationwide Building Society, which requires homemovers to borrow a minimum of £275,000.

Another type of variable mortgage is a tracker mortgage, where the rate tracks the Bank of England base rate, which means that the rate generally rises and falls in line with base rate. Tracker mortgages are often more popular when the Bank of England base rate is low or there are rumours that base rate will fall as the base rate fall is usually passed on to borrowers.

For example, before the Bank of England cut base rate in response to the pandemic the average rate on a two year tracker for those who owned 40% equity in their home was 1.73%, whereas at the start of this month the average rate stood at 1.20%.

Although a record low base rate may have led some with a tracker mortgage to be content staying on their current deal, with financial experts predicting a rise in base rate in the coming months, those on a tracker mortgage may want to consider switching deals.

Who should get a variable rate mortgage?

Variable rate mortgages are usually more popular with those who have a higher appetite for risk. Those considering a variable rate mortgage should also be confident that they can meet repayments should they suddenly increase. As these types of mortgages can offer a lower rate than their equivalent fixed rate deals, they can also be more popular with those with a substantial mortgage for whom even a marginal reduction in rate will see their repayments fall significantly.

Although most mortgage borrowers will likely prefer the security of knowing that their monthly repayments will remain the same as a fixed rate deal, for some borrowers a variable rate mortgage may be a good option.

Eleanor Williams, finance expert at, said: “Borrowers who are focused on securing the lowest possible initial rate may be tempted by a lower variable mortgage rate, however, with rumours of a possible interest rate rise on the horizon, borrowers should be aware that their monthly mortgage payments on a variable rate product could increase and it would be essential to ensure they would be able to afford to meet their repayments if they were to rise.

“Whether they prefer the stability of a fixed rate or opt for a variable product, borrowers considering securing a new mortgage should compare the different options available and make certain that they think about the overall, true cost of the whole package a deal offers by balancing the initial rate against any outgoings they might incur, such as associated fees.”

How to get mortgage advice for free

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