The choices are varied and their suitability will depend on individual circumstances including budget requirements and attitude to risk in relation to potential interest rate movements.

Lenders Standard Variable Rate (SVR)

All lenders will apply an SVR and this can vary from lender to lender. It is the rate most borrowers are transferred to once a particular product period comes to an end. This rate may rise or fall in line with changes to the Bank of England (BOE) base rate although it is at the discretion of the particular lender and cannot be guaranteed to do so. Early Repayment Charges (ERC) will not normally apply to such rates.

Discount Rate

The discount mortgage offers a reduction from the lender’s SVR. For example, a lender offering a 1.5% discount from an SVR of 6.5% will apply an initial rate of 5%. This will then fluctuate in line with a change in that lender’s SVR. However, it is important to remember that any change is at the discretion of the particular lender and will not necessarily follow a change in the BOE base rate.

Tracker Rate

The tracker mortgage is set up to automatically track the BOE base rate at an agreed differential, for example base rate plus 0.25%. Some products will track the BOE base rate for the lifetime of the loan rather than a specific short term period. A lifetime tracker is unlikely to have an ERC and more likely to offer flexible features. 

It is important to remember that with any of the above products, interest rates and therefore monthly payments can rise as well as fall. This may be an important factor for anyone working to a particular budget.  

Capped Rate

The capped rate mortgage is guaranteed not to rise above a certain (capped) rate for the period of the product but will also allow for the possibility of a rate reduction if the lender responds favourably to a reduction in the BOE base rate by reducing the Lenders Standard Variable Rate. Such products can be seen are being more attractive in times of increased rate activity and an unpredictable climate.

Fixed Rate

The fixed rate mortgage is guaranteed not to change for a certain period. Whilst such a borrower will not benefit should interest rates begin to fall, the peace of mind and security provided are often more important to those operating within a very specific budget.