A variable rate mortgage is a type where the interest rate and the monthly repayments may fluctuate either downwards or upwards. Three types of variable rate deals are standard variable rates (SVRs), tracker rates and discounted rates.

How does a variable rate mortgage work?

A variable mortgage means the interest rate and monthly payments can increase or decrease. The lender sets the variable rate, which may not change with the Bank of England base rate (unless you have a tracker mortgage). If you have a standard variable rate (SVR), you can usually switch to a different mortgage deal without paying Early Repayment Charges (ERCs).

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Different types of variable rate

There are three main types of variable mortgages: standard variable rate (SVR), discounted rate, and tracker.

Standard variable rate mortgage (SVR)

Once your introductory deal ends, your lender will shift you to the standard variable rate, usually higher than other mortgage rates. The lender has control over when this rate changes. Consider switching to a new deal if you are moved onto the SVR when your existing deal finishes to save costs.

Discounted rate mortgage

A discounted rate mortgage provides a reduced rate from the standard variable rate for a fixed duration. The discount is a percentage, such as 1.75%, subtracted from the standard variable rate. If the standard rate is currently 4.5%, your rate will be 2.75% with the discount. The lender determines the rate you pay, which can fluctuate, so the amount you pay each month may vary.

Tracker rate mortgage

A tracker mortgage follows the changes of another interest rate, typically the Bank of England base rate, with an additional percentage.

A tracker mortgage implies that your monthly payments will change based on fluctuations in interest rates. Tracker mortgage rates usually change the month after the base rate changes. Some tracker deals come with an interest rate collar, which sets a minimum interest rate that your rate won’t drop below, even if the Bank of England base rate falls below that level. For more information on tracker mortgages, check out our guide, “What is a tracker mortgage?”.

Advantages of variable rate mortgages

If your mortgage has a variable rate, you can usually make overpayments to reduce the overall interest you pay and pay off your mortgage early. However, if you have a tracker deal, you may be penalised for paying off your mortgage before the end of the term. The payments on a tracker deal will go up when the Bank of England base rate increases and go down when it decreases.

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Disadvantages of variable rate mortgages

Variable-rate mortgages have a major drawback – your payments may fluctuate with time, making budgeting difficult. Hence, if you want to ensure that your payments remain constant over a particular period, a fixed-rate mortgage will give you the security you need.

Frequently Asked Questions

A variable rate mortgage is a type of mortgage where the interest rate can change over time. The interest rate is usually linked to the Bank of England base rate or the lender’s standard variable rate (SVR).

The main advantage of a variable rate mortgage is that it can be cheaper than a fixed-rate mortgage. This is because the interest rate can go down as well as up.

The main disadvantage of a variable rate mortgage is that the interest rate can go up as well as down. This means that your monthly payments could increase if interest rates rise.

The interest rate on a variable rate mortgage can change at any time. However, most lenders will only change the interest rate when there is a change in the Bank of England base rate or their own SVR.

Yes, you can switch from a variable rate mortgage to a fixed-rate mortgage at any time. However, you may have to pay an early repayment charge if you switch before the end of your current deal.

When your variable rate mortgage deal ends, you will usually be moved onto your lender’s SVR. This means that your monthly payments could increase or decrease depending on changes to the interest rate.

Yes, you can pay off your variable rate mortgage before the end of the term. However, you may have to pay an early repayment charge if you do so.

A discount variable-rate mortgage is where the interest rate is set at a discount to the lender’s SVR for a set period of time. For example, if the lender’s SVR is 5% and the discount is 1%, then the interest rate would be 4% for the set period.

A collar is a range of interest rates that your mortgage can fluctuate between, with a minimum and maximum limit. A cap is a limit on the maximum interest rate that your mortgage can reach.

As of June 1st 2023, the average two-year variable-rate mortgage in the UK is 5.09% (based on 75% LTV) and the average standard variable rate (SVR) in the UK is 7.75% ¹.


  1. What are today’s UK mortgage rates? | 1 June 2023 | Uswitch. https://www.uswitch.com/mortgages/uk-mortgage-rates-today
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