Guide to Variable Rate Mortgages

This is the most common type of mortgage. It means your monthly repayments will be linked to base rates set by the bank of England. Thus if interest rates go up your mortgage payments will increase. To be precise your mortgage payments will depend upon your lenders SVR (Standard Variable Rate). In practise this is closely linked to the base rate set by the Bank of England. However SVR do vary between different lending institutions so it is worth looking around to find the most competitive SVR.

Advantages of Variable Mortgages

  1. They are the most common type of mortgage and therefore the most competitive. Often they can work out the cheapest.
  2. Long term interest rates may be entering a period of stability. It is very unlikely we will return to the high interest rates of the early 1990s.

Disadvantages of Variable Mortgages

  1. There is a high element of uncertainty. Although interest rates have been low recently there is no guarantee they will continue to remain low.
  2. If base rates rise significantly then borrowers may be unable to meet their monthly mortgage repayments.

The main alternative to a variable mortgage is a fixed rate mortgage