Mortgage Types: An Overview Of Loan Options And Features

Variable Rate Mortgage Arrangements: SVR and Tracker Mortgages

Variable rate mortgages, including Standard Variable Rate (SVR) and tracker options, are prevalent in the UK and are characterised by fluctuating interest rates during the repayment period. The SVR is determined by the mortgage lender and can change at their discretion, often moving in relation to economic conditions or wider changes in the Bank of England’s base rate.

Tracker mortgages explicitly follow the Bank of England base rate, plus a predetermined margin. For example, a tracker may be advertised as “Bank Rate + 1%.” When the base rate changes, the mortgage interest rate and corresponding repayments are adjusted accordingly. This linkage provides transparency but also exposes borrowers to regular payment changes, both increases and potential reductions.

SVR mortgages generally come into effect when borrowers finish an initial deal, such as a fixed or discounted arrangement. The SVR tends not to offer the lowest available rate, and because changes in rate are at the lender’s discretion, monthly payments can be unpredictable. There is usually no early repayment charge with SVR products, providing more flexibility for switching or redeeming the mortgage.

Potential advantages of tracker or SVR mortgages may include initial cost savings if the base rate or SVR remains lower than fixed rates available at that time. However, there is a risk that repayments could increase if the Bank of England raises rates or if the lender chooses to adjust the SVR. This variability necessitates ongoing monitoring of economic indicators and lender communications by borrowers.