Compare the best variable rate mortgages UK 2023

How do variable mortgages work?

A variable rate mortgage has an interest rate which can change over time. Your lender might cut the rate due to economic conditions, or decide to raise it. This means over the course of a year, your mortgage rate (and your periodic repayments) might increase or decrease. Fixed rate mortgages don’t change during the fixed period, offering more certainty but less flexibility. Variable rates tend to be lower than fixed rates and may have fewer fees.

How do I compare variable rate mortgages?

Consider the following factors when comparing variable mortgage rates:

• Eligibility. Different lenders will put limitations on what types of properties they will finance and the types of borrowers they will accept. Ensure the mortgages you’re comparing are available for your situation, including the type and size of the property, your income source and your loan purpose.
• Interest rates. A lower interest rate means lower repayments. This is easily the biggest factor. It’s also a good idea to use a repayment calculator to find out what your repayments will look like with the given interest rate, and also add an extra 1% on top of this to see what your repayments would be should interest rates rise.
• Fees. A variable rate mortgage can come with a range of fees including upfront application fees or ongoing fees, as well as fees to use features such as offset accounts. Ensure that the fees justify the interest rate and features you’ll receive with the loan. This is why you should always pay attention to a loan’s comparison rate, which takes into account its interest rate plus fees.
• Features. What features you choose to add to your comparison will depend on how you want to use your mortgage. If you prefer to use your salary to minimise the interest charged, you might want to look for an offset account. If you want a mortgage that allows you to make unlimited additional repayments, you might want to look for mortgages with a free redraw facility.

The pros and cons of variable rate mortgages

To decide if a variable rate is suitable for you, start by weighing the benefits and risks. This depends heavily on your property needs and strategy.

Types of variable rate mortgages

There are a few specific types of variable mortgage rates, with some important differences between them:

• Standard variable rate (SVR) mortgages. This is your basic variable rate mortgage in which the SVR you are charged is set by the lender, who can raise or lower it by any amount, at any time.
• Tracker mortgages. This is a type of variable rate mortgage in which the interest rate you are charged tracks another rate, usually the Bank of England (BoE) base rate. This means that if the BoE raises or lowers the base rate (which is currently 4.25%), your mortgage lender will also adjust its interest rate accordingly. But it does not mean that your provider will match the rate set by the BoE – usually most mortgage lenders set their interest rates at a certain margin above the BoE base rate.
• Discount rate mortgages. This is another type of variable rate mortgage in which the mortgage lender gives you a discount on its standard variable rate for either a set period (for example, two or five years) or for the entire term of the mortgage.

If you’re looking for a more specialised type of variable mortgage like some of the ones listed above, you should consider contacting a mortgage broker to get some free, expert guidance.

What is the difference between an SVR and a tracker rate?

Tracker rate mortgages work in a similar way to variable rate mortgages. The difference is that the mortgage tracks the Bank of England base rate rather than the lender’s SVR.

The advantage is that you are guaranteed to benefit from the full effect of any rate cut. This is because lenders frequently short-change borrowers when reducing their SVR.

But you are also guaranteed to feel the pain of rate rises if you’re on a tracker rate mortgage.

Anyone considering a tracker should try and secure one with either no early repayment charge, making it free to leave for another deal, or with a cap on how high rates can go.

While your tracker mortgage rate is low, you can take the opportunity to overpay on your mortgage, shortening the total length of time it takes you to pay off your mortgage and cutting the amount of interest you pay.

Standard variable rate vs fixed-rate mortgages

An SVR mortgage offers you flexibility since you can generally remortgage or change lenders without facing a fee. However, the amount you pay in interest each month can change, so you need to make sure you can afford the rate even if it increases in the future.

For certainty over your interest payments, a fixed-rate mortgage, where your rate will be set for an agreed period (often two or five years) may work better for you.

More questions about variable rate mortgages

Choosing the right type of mortgage is complex. Here are few more specific questions and scenarios that might be relevant to you.

• My variable rate has just increased a lot! What should I do?

  Don’t panic. Check the new rate and compare other interest rates. Look to see if your current lender has a better product, and don’t be afraid to switch to a new lender if you think you’re paying too much.

• Do variable mortgages come with 100% offset accounts?

  An offset account is a transaction account which is attached to your mortgage. It helps you reduce your interest repayments by offsetting your savings against the principal of the loan. Offset accounts aren’t standard features on all variable mortgages, but they are more commonly found on variable loans than on fixed loans.

• My fixed rate loan period has finished and I'm now on a variable rate. What should I do?

  It’s imperative that you keep track of when the fixed term ends, because after that your loan will revert to the bank’s variable rate. Find out what your new variable rate will be and start comparing. You could find a lower rate with another lender, but you should also look at the lowest rate your current lender is offering (this is possibly a standard variable rate or a special offer for new customers). While there’s no guarantee your lender will agree, there’s no harm in asking for the lowest advertised rate they have. If they insist you stick with a higher rate than you can get elsewhere, it might be time to remortgage.

• What's the difference between a bank and credit union?

  Banks and credit unions are both financial institutions which offer products such as mortgages, personal loans, credit cards and more. The major difference is that a bank is owned by shareholders (for-profit), while a credit union is owned by its members (not for profit).

• How much deposit will I need to buy a home?

  This will depend on the mortgage and other circumstances, but generally, lenders prefer a deposit of 20%. Some mortgages will allow as little as 5%, or even no deposit if you have a guarantor such as a family member guaranteeing your mortgage.

• What happens if I pay my mortgage off early?

  As always, this will depend on your mortgage, so if you think you’ll be paying it off early you might want to read the terms and conditions before applying. In many cases, variable rate mortgages will charge a discharge fee to exit your mortgage if you pay it off early.