Tracker & Variable Rate Mortgages UK

Types of Variable Rate Mortgages

There are three main types of variable rate mortgage in the UK:

• Tracker mortgages: Follow the Bank of England base rate plus a set margin (e.g., base rate + 0.75%)
• Discount rate mortgages: A set discount off the lender's SVR for a fixed period (e.g., SVR minus 1.5% for 2 years)
• Standard Variable Rate (SVR): The lender's default rate — you move to this when your initial deal ends

For a comparison with the alternative, see our fixed-rate mortgages guide.

How Tracker Mortgages Work

A tracker mortgage follows the Bank of England base rate by a fixed margin. If the base rate is 4.5% and your tracker is base rate + 0.75%, you'd pay 5.25%. If the base rate drops to 4%, your rate becomes 4.75%.

Tracker periods typically last 2-5 years, after which you move to the SVR. Some "lifetime trackers" last the entire mortgage term. Most trackers don't have early repayment charges, giving you flexibility to remortgage at any time — and they often allow unlimited overpayments.

When to Choose a Variable Rate

Variable rates can be attractive when:

• You expect interest rates to fall — trackers benefit immediately from base rate cuts
• You want flexibility to overpay or remortgage without penalties
• You're comfortable with some payment uncertainty
• You have financial reserves to absorb potential payment increases

In the current market where rates are expected to gradually decrease, trackers can be particularly attractive as you'll benefit from each base rate cut automatically.

Risks of Variable Rates

The main risk is payment uncertainty. If the base rate rises unexpectedly, your payments increase. Unlike fixed rates, there's no ceiling on how high your payments could go.

Some trackers have a "collar" (minimum rate) but rarely a "cap" (maximum rate). Budget for the possibility of rates rising 1-2% above current levels when deciding if a tracker is right for you.

Don't Stay on Your Lender's SVR

If your initial deal has ended and you've moved to your lender's SVR, you're almost certainly paying too much. SVRs are typically 1.5-2.5% higher than the best available rates.

On a £250,000 mortgage, the difference between an SVR of 7% and a deal rate of 4.5% is roughly £400 per month. Contact us for a free review — switching could save you thousands.