MORTGAGE TYPES AVAILABLE

Your Guide to the Bank of England Base Rate, Fixed Rates and Variable Rates

The Bank of England Base Rate

The Bank of England Base Rate is set by the Bank of England’s Monetary Policy Committee, who come together every six to seven weeks to decide whether to change it. The base rate has an impact on how lenders price their mortgage products. If the base rate increases, so could the cost of borrowing.

To get the best advice, based on your individual circumstances, a no-obligation appointment with a qualified Mortgage Consultant is a good starting point. Our consultants can talk you through the following options in more detail and compare thousands of deals from a panel of carefully selected lenders to help find the right mortgage for you.

Speak to a mortgage consultant to make sure you are on the right mortgage for you.

Fixed Rate Mortgages

As the name suggests, with a fixed-rate mortgage, you pay a fixed amount over a fixed period of time.

Key points:

Fixed-rate mortgages typically run for two, three or five years. You may find longer fixed rate periods, depending on the lender.
The amount you pay remains the same every month over that period.
You are protected from any base rate increases throughout this time, but will not benefit from any rate decreases.
Leaving a fixed-rate deal early may incur additional charges.

Variable Rate Mortgages:

Trackers

A tracker mortgage is a type of variable rate that is affected by changes in the economy.

Key points:

Tracker mortgages usually track the Bank of England Base Rate.
Typically, when the Base Rate changes, the amount you pay every month will vary accordingly. In addition, you will also pay lender interest. For example, if you took a tracker mortgage at the current base rate (5.25%)* plus an additional 1%, your payments would be at 6.25% (5.25% base rate + 1% tracker).
You benefit from rate decreases immediately, but are not protected from rate increases in the same way as a fixed rate mortgage.

Standard Variable Rate (SVR)

Standard Variable Rate mortgages (SVR) are set by each individual lender and therefore may vary.

Key points:

Most SVRs follow or are influenced by the Bank of England Base Rate.
Monthly payments are typically higher than fixed rate or tracker mortgages.
Lenders can change their Standard Variable Rate at any time, and therefore this will impact on your monthly payments.
SVRs can offer you more flexibility than a fixed rate mortgage, as you can switch to different mortgage options at any time and are less likely to incur any early repayment charges, however, your monthly budgeting can be more difficult.

Choosing the right mortgage

When it comes to choosing the right mortgage for you, there are various factors that come into play. Each of the above mortgage options has its benefits and drawbacks.

A fixed rate mortgage offers you the security of knowing how much you will be paying every month throughout the fixed time period. However, you will not benefit from decreases to the base rate.
Variable mortgages (tracker or SVR) offer more flexibility to switch mortgage rates without usually incurring any early repayment charges, and you could benefit from lower monthly payments if there are decreases to the base rate.

However, neither rate offers you a guarantee that one will be cheaper than the other. Additionally, it’s important to take the following into account: the overall cost of the mortgage product, any additional fees, lender criteria and the length of time (mortgage term) you wish to borrow for.

Book a no-obligation mortgage appointment today to find out more

Correct at the time of publishing – 30/04/2024
MS/CON/7378/04.24

Bank of England, sourced on the 29/04/2024

Articles used for research: Mortgage types explained: fixed, variable or tracker - MSE (moneysavingexpert.com)