Guide to Variable Rate Mortgages
Variable rate mortgages are based on the standard variable rate offered by mortgage lenders.
How do mortgage lenders decide on their standard variable rates?
Mortgage lenders set their standard variable rate depending on the movement of the Bank of England base rate. The level at which the standard variable rate is set varies between different lenders, but a standard guideline is between 1.5% and 3.5% over and above Bank of England base rate.
Do standard variable rate mortgages rise and fall with interest rates?
This is not the case, and standard variable rate mortgages are not entirely governed by the rise and fall of base interest rate changes made by the Bank of England. Tracker mortgages are more closely allied to these shifts.
What are the advantages of variable rate mortgages?
This type of mortgage loan generally allows the borrower to shift from a standard variable rate mortgage to another mortgage with no type of early redemption fee. Furthermore, if the Bank of England base rate falls, your mortgage payments may also fall.
What are the potential problems with variable rate mortgages?
The foremost danger with variable rate mortgages is a large increase in Bank of England base interest rates, and a subsequent increase in lender standard variable rate. The ability for mortgage borrowers to budget is also reduced, and if interest rates slide lenders do not have to pass this down to borrowers. Those people looking for fixed mortgage repayments may be better off opting for fixed-rate mortgages.