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Variable rate mortgage

A variable rate mortgage refers to a mortgage deal in which the interest element paid per month can vary if the lender (or the Bank of England) changes their base interest rate.

There are pros and cons to variable rate mortgages, with the potential for savings if the base rate drops lower than the amount you are currently paying.

In 2021, 42,220 mortgages were taken out with a variable interest rate.*  Although fixed rate deals can be the more popular choice for buyers, there can be many advantages to a variable rate.

If wanting flexibility in your payments, variable rates are an option worth seriously considering.

About variable rate mortgages UK

Most lenders currently operating in the UK will offer a variety of interest rate types for their mortgages. There is a fixed rate mortgage, in which the amount of interest paid remains consistent for a set period of time.

The other option is a variable rate mortgage. This is where the amount of interest charged can vary over time, due to various factors. This can include the lender changing their rates or increases/decreases in the Bank of England’s base rate.

There are a few options when it comes to variable rate mortgages. This is great as it leaves buyers with a choice of deals if a fixed rate does not seem the right option for them.

The main types of variable rate mortgage available are:

  • Standard variable rate (SVR) mortgage: The interest charged will vary if the lender changes their standard basic rate of interest, meaning monthly payments can potentially increase and/or decrease over the course of the mortgage term
  • Tracker rate mortgage: The interest rate charged will increase or decrease in line with the Bank of England’s base rate of interest.
  • Discount rate mortgage: The lender offers a discount on their standard variable rate for a set time period (e.g. a 1% discount would equal paying 2% interest on the loan if the standard rate was 3%).

All these options have the potential to benefit borrowers. It is a good idea to consider all the available choices and potential savings before deciding which is the right choice for you.

If you have an interest only mortgage in place, making sure you are happy with the interest rate charged can be even more vital. The entire amount you pay per month will be affected by any rate changes. It is only the interest element of the loan paid per month with this mortgage type. The capital borrowed will be repaid at the end of the mortgage term.

For more information on interest only mortgages CLICK HERE.

Best standard variable mortgage rate UK

The rates charged by lenders can vary massively as base interest rates can be set at a lender’s own discretion.

This means they do not need permission to alter the interest rate they charge on your loan. They will usually inform you before making said changes though, so you know to expect different pricing on your payments moving forwards.

Each lender could be offering completely different interest rates. The best way to find a cheaper rate will be to compare prices across available mortgage lenders. Even better would be to compare the various mortgages this lender has to offer as well, as one in particular may be more suitable.

If on a tracker rate mortgage, the interest rate will change based on the Bank of England’s base rate. This means the amount of interest charged will be the same regardless of which lender your mortgage is with.

Benefits of variable rate mortgage

A standard variable rate mortgage (also known as an SVR mortgage) is a common choice for many UK buyers.

There are many advantages to being on a lender’s standard variable rate. Lenders have discretion over the amount of interest they charge, meaning they could for various reasons decide to decrease the amount they charge.

This would equal the borrower paying less until the interest rate changes again. Of course, there is also the potential for price increases, so it is worth bearing that in mind.

Another advantage is that often with a variable mortgage rate you can avoid being tied into early repayment charges (ERCs). An early repayment charge is a fee the lender will charge if you need to leave the mortgage deal early. This could be for any reason e.g. a remortgage.

This is because ‘special rates’ such as with fixed rate mortgages can be less profitable for the lender. Because of this lenders will charge fees for leaving the deal early to make some profit. This is not the case with variable rates and therefore you may be able to avoid these charges.

Other benefits include:

  • Lenders may offer a discounted rate initially (for a fixed term) to entice borrowers into taking out a variable rate deal
  • More flexibility as you can usually leave the deal early with no fees charged
  • If on a discounted rate, you will save even more if the lender’s SVR drops
  • Anyone on a tracker rate will end up with lower repayments, if the Bank of England lowers their interest rates. This can be regardless of what their lender’s base rate is
  • If thinking you may move again within a few years, a variable rate will offer more benefits than a fixed rate

For more information about mortgages with no early repayment charges CLICK HERE.

Variable rate mortgage advice

When it comes to variable rate mortgages, it is best to assess all the options available on the market and go from there. There are several types of variable rate mortgage so the first step should be deciding which of these seems most appropriate choice.

If needing further advice about how to find the right variable rate mortgage for your needs, it is best to speak to a mortgage specialist.

We can compare rates across over 50 top UK lenders to find the right deal for you. This includes SVR or tracker mortgages as well as discount rate mortgage deals.

With over 20 years experience in pairing buyers with their perfect mortgage, we know exactly which lenders are best suited each individual interest rate type.

Mortgage broker for variable rates

The best idea when applying for a mortgage is to try and find the broker best suited to advising you on the mortgage type you require. With such a long-term commitment, it is key to be comfortable and confident you have chosen the right advisor.

We have a vast amount of experience in variable interest rate mortgages and are well equipped to answer any questions you may have.

Variable rate mortgages are an option that have been available for many years. This means we have worked with lenders offering these for years and know exactly which ones to go to for the most competitive rates.

For more information on how to find the best pricing for your variable rate mortgage, speak to our team of mortgage EXPERTS.

Best mortgages for variable rates

With so many lenders and mortgage deals available it can be subjective as to which deal will be the ‘best’. Each borrower will have their own needs and budgets to consider, meaning what is suitable for one may be unsuitable for someone else.

The type of variable rate mortgage will impact the amount paid per month, meaning one may be more beneficial than another depending on your circumstances.

Someone on a tracker rate for example may end up paying less than someone on a standard variable rate with the same lender. This would be if the Bank of England’s base rate drops below the lender’s base interest rate.

It is best practice to assess all deals available across lenders to find the terms and pricing best suited to your finances. Certain lenders may be able to offer better rates so comparison will usually help reveal the reasonably priced options for your loan repayments.

If unsure which type of variable rate mortgage will work best for you, speak to a specialist mortgage broker for further advice.

Variable rate mortgages for self employed

If you are a self employed freelancer, sole trader, company director or even running your own business, a variable rate can be very beneficial. If the interest rate charged drops, you could save considerably on your monthly repayments.

With a lot of expenses to keep track of, a drop in the amount being charged for mortgage repayments would be welcome news. This is especially true if you have a personal mortgage and one for your business premises.

All the benefits of variable rates will be just as applicable to self employed people as to any other workers. This includes the potential for discounted rates initially and possible avoidance of early repayment charges.

Those who are self employed may be concerned it will be harder for them to get a mortgage but this is not the case. There will just be additional questions and requirements that lenders will have in these circumstances.

Some questions lenders may ask include:

  • Can you provide proof of income?
  • How long have you been self employed (12 or more months)?
  • How you receive your income (dividends, salary?)
  • Is the business viable/profitable?
  • Can you provide 3 or more years worth of business accounts?

For more information on mortgages for self-employed workers CLICK HERE.

Variable rate mortgages with bad credit

Having an element of adverse credit in your financial history can be a worry for many people when they are applying for a mortgage. If this is the case for you, do not be concerned that you will not be able to get a loan.

We specialise in helping those with poor credit histories to access great mortgage deals. We have several lenders on our dedicated panel that specialise in providing mortgages in this situation.

These lenders will be able to provide either fixed or variable rate mortgages depending on the borrower’s preference. There will usually be several great options to choose from, as lenders will have various deals available.

Some of our lenders for bad credit include:

  • Accord Mortgages
  • Aldermore
  • Bluestone
  • Kensington
  • Paragon
  • Precise
  • The Mortgage Lender

For more information on mortgages for borrowers with a poor credit score or history CLICK HERE.

Best mortgage lenders for variable rates

In the UK, there are over 100 lenders currently providing mortgages. This includes larger high street lenders as well as more specialised mortgage providers.

Variable rate mortgages are commonly available, meaning you will likely have a wide variety of deals to choose from.

This is great news as it means there is the potential to save on your mortgage by simply comparing prices across providers. Often comparison will reveal one or two lenders that are offering far better rates whilst still providing the terms you need.

With so many choices, it may seem difficult to know where to begin with your mortgage search. If this is the case, speak to one of our EXPERT advisors. 

We are specialists in variable rate mortgages. We will often be able to access preferential rates due to pre-existing relationships with great lenders across the UK.

How does income work for variable rate mortgages?

When it comes to variable rate mortgages, generally income will work in much the same way as it would with a fixed rate.

A mortgage provider will ask various questions relating to your income and occupation before deciding whether to approve your loan. They will also need information relating to your credit history and personal finances (or business finances if a business owner).

Examples of questions lenders could ask during the application process include:

  • What is your annual income?
  • What is your monthly income vs expenses?
  • Are you self employed? Can you provide proof of income?
  • Are you currently in employment and if so how long have you been with your current employer?

There is no need to be concerned about these questions as they are a standard part of any mortgage application.

You will usually be able to find a lender willing to loan to you no matter the answer to these questions. It just may be that a more specialised lender could be more suitable under certain financial circumstances e.g. a borrower with a history of debt.

If an issue with your income has previously caused you to be declined for a mortgage, speak to a mortgage specialist for further advice.

Variable rate Buy to Let mortgages

Buy to let mortgages are a great option for anyone wish to invest their money in the property market. A buy to let mortgage is designed to be used to buy a residential property. The buy to let property is then rented out to a third party, which can lead to a decent profit for the owner.

In these circumstances, a variable rate can be a great option. This is because there is the potential for even greater savings, if the amount charged for the lender’s base interest rate drops. This possibility added to the profit from rental income will be excellent news for any property investor or landlord.

There is also greater flexibility with a variable interest rate as you will usually not be tied into fees such as early repayment charges. This means if needing to sell the property for any reason you won’t have those additional costs to worry about. This can be beneficial if wanting to reinvest in property elsewhere that may be more profitable than in your current area.

For more information on buy to let mortgages CLICK HERE.

Variable rate mortgage specialists

We are SPECIALISTS in variable rate mortgages and able to compare pricing across over 50 top UK lenders. This allows us to source the perfect mortgage deal for each invidual borrower.

Any borrower going through us will receive extensive expert advice and we will be available to talk you through each step of the mortgage application process. We can ensure you choose the mortgage deal most appropriate for your needs and budget.

Speak to one of our team for further advice on how to find a variable rate mortgage with excellent rates.

*according to Statista.com

Useful resources

Gov.uk – Support for mortgage interest

Citizen’s Advice – Deciding if you should apply for SMI

Statista.com – Average mortgage interest rates in the UK from March 2000 to August 2022

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