Variable moving home mortgage rates

What is a variable rate mortgage?

A variable rate mortgage is one that can change at any time depending on wider economic conditions. This means that, while there’s the chance the rate can decrease, it could also increase, which means you can’t guarantee how much your mortgage payments will be from one month to the next. This is very different to fixed rate mortgages, where the rate – and therefore the repayments – are set for the initial term agreed.

Variable rates are often linked to the Bank of England base rate, particularly if you’ve got a tracker deal. Note that standard variable rate (SVR) mortgages are a little different, and although Bank of England policy decisions can have an impact on the rate charged, it’s entirely at the discretion of the lender. We’ll discuss this further in the types of variable mortgages section below.

Types of variable rate mortgages

There are three core types of variable rate mortgage available, each with slightly different features. These are:

Tracker mortgages

Tracker mortgages quite literally “track” the Bank of England base rate, and so move up and down in line with any changes to this external rate (some may track a different measure, but it’s usually base rate). This means they can be a great choice during times when the base rate is expected to fall, as your monthly repayments will reduce in line with that. Note that just because tracker mortgage rates follow an external measure, it doesn’t mean they mirror it exactly. They’re usually a set percentage above it, but if base rate falls by 0.25% (for example), so will your mortgage rate.

These mortgages will typically track the external rate for an initial term – often up to five years – during which time there will normally be an early repayment charge (ERC) if you want to switch to a different deal. However, lifetime tracker mortgages are also available, which may not have ERCs attached (or if they do they’ll usually only be charged for the first few years; always check your mortgage terms).

Bear in mind too that 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 therefore be those with a cap, but unfortunately capped mortgages tend to be rare.

Standard variable rate mortgages

Standard variable rates (SVR) are set by the individual lender, and it’s this you’ll fall back on after your initial mortgage deal ends. Like other variable rates, SVRs can fluctuate according to external measures, but the impact of those external measures is entirely at the discretion of the lender. As such, these deals will generally have higher rates than most other mortgage types in the market.

The flip side is that the fees associated with SVR mortgages are often relatively low, with low setup costs and no early repayment charges, so you’re free to remortgage without penalty. They’re the most flexible type of mortgage but also the most expensive – even the best SVR mortgage rates in the UK will be far higher than any other type – and so for most people will only be a last resort.

Discounted variable rate mortgages

With this type of variable mortgage, the lender offers a discount on a certain rate – most commonly their SVR – for an introductory term. For example, a lender offering a 3% discount on its SVR of 7.50% for two years would charge 4.50% to the borrower for the initial two-year period, after which it would revert to the SVR (or ideally the borrower would remortgage first). You can find these deals in our comparison chart for discounted variable mortgages.

The most important thing to remember with variable mortgages is that the rate – and therefore your repayments – can theoretically change at any time. This is why it’s important to carefully consider your options before you commit, as even if the lowest variable mortgage rates can beat a fixed deal at the outset, they can rise dramatically during times of economic uncertainty. A mortgage broker will be best placed to help guide you through your options.

The biggest risk is that your payments could become unaffordable, but if you’ve got a variable rate mortgage with an initial term, it could still be expensive to switch thanks to early repayment charges. Always discuss the options thoroughly with a mortgage broker before you decide.

Compare the best variable rate mortgages

If you’ve decided on a variable rate mortgage, your next step is to find the best deals – and you can compare the best variable rate mortgages in the UK using our chart above. The chart is updated daily by our team of in-house experts who are the first to hear about changes to the UK mortgage market, so you can be confident you’ve got access to the most current selection of rates available.

When comparing mortgages, it’s important to consider the whole offer, rather than focusing on rate alone. This is because, while you of course want to benefit from the lowest repayments possible, there are other features to look at that can impact the mortgage’s overall cost. These can include:

• the product or arrangement fees
• any additional perks offered by the lender (such as free valuation or legal fees)
• early repayment charges.

The lowest rate may not always be the best, so always factor in other costs before you make your decision.

What is LTV and how does it affect the mortgages available to me?

Loan-to-value (LTV) refers to the ratio between the value of the property and the loan you are seeking to help buy it. So, if you have a 10% deposit (for example, £20,000 on a property worth £200,000), you’ll need a mortgage at 90% LTV. The larger your deposit or equity from your previous home, the lower the LTV, and the better the deal you will likely be offered.

To find out roughly how much you can borrow you can use our mortgage borrowing calculator, and from there, our LTV calculator can help you work out your LTV based on your ideal property price.

What fees will I pay?

As with all mortgage types, there are various fees you should be prepared for when taking out a variable rate mortgage. These can include:

• arrangement fees
• legal fees
• searches and land registry costs
• money transfer fees
• valuation and survey costs.

There may also be estate agent fees and moving costs to take into account (unless you’re simply remortgaging), as well as stamp duty if you’re buying a new property.

With the exception of SVR mortgages, which tend to come with low or no fees (but higher rates), there isn’t much difference between the types of fees you can expect with a fixed rate deal and those on a variable rate. You can find out more in our guide to the costs of buying a home.

What is the longest variable/tracker rate available?

Both discounted and tracker rate deals can have initial terms ranging from two years up to the entire lifetime of the mortgage. Keep in mind that the longer the term, the higher the likelihood that rates could rise, so the product could end up much more costly than remortgaging over several short-term deals.

Think carefully and do some calculations before you commit to a variable for term deal, and make sure you can remortgage penalty-free if you change your mind.

Can I pay off my mortgage early?

If your mortgage deal allows overpayments, there’s nothing stopping you from paying more than the required monthly amount. Typically you’ll be able to overpay roughly 10% of the balance per year, but variable deals can sometimes be more flexible, so make sure to check with your lender.

Some variable mortgages – particularly SVRs – don’t have any restrictions at all, so you may be able to completely pay off your mortgage ahead of time (if you come into an inheritance, for example). Just make sure that this is allowed and that any exit or early repayment charges won’t make it too expensive, otherwise you may have to wait until you can remortgage.

Will applying for a mortgage affect my credit rating?

If you make an official application, rather than a mortgage in principle, this will show up on your credit report and therefore can influence it.

Even a successful application could have a negative effect on your credit score for a temporary period, as it will count as a new loan. However, once you’ve had it a while and have shown that you can keep up with your repayments, your credit score should move upwards again and could even surpass its previous rating.