Variable Mortgage Rates
A variable rate mortgage means that your monthly repayments may rise or fall depending upon the decisions made by the Bank of England Monetary Policy Committee (MPC). This group meets every month to decide if the economy is in need of boosting or restricting and they adjust the Base Rate accordingly. Mortgage lenders and other loan providers use this figure to decide upon their own charges and interest rates.Current Standard Variable Mortgage Rates
- Bank of England base rate 0.5%
- Halifax SVR 3.5%
- Nationwide Building Society SVR 3.99%
- First Direct SVR 3.69%
- Natwest SVR 4.00%
- Barclays SVR 2.49% (via the Woolwich)
- Santander SVR 4.24%
If the MPC decides to change the Base Rate then your mortgage lender is likely to follow the decision and change their own rates in line with the MPC decision. Therefore your monthly repayments may go up or down and you will need to account for this when budgeting for your monthly expenditure.
Lenders take the Base rate and then add their own charge on top of this, so if the Bank of England rate is 0.5% the lender may decide to use 2.5% as its own standard rate. If the Bank of England rate is increased to 1.0% then the lender will increase their standard rate to 3.0%. Even small percentage changes can make a big difference to your monthly repayments and if you know that you have taken out the maximum loan that you can afford you should make sure that you are confident in your ability to meet your payments if interest rates rise.
Interest rates have been historically low for the last two years and customers who have a variable rate mortgage have taken advantage of this unique situation – enabling some home owners to pay less for their loan than they would have in the past. But if the Bank of England Base rate rises these customers will be facing significantly higher monthly repayments. Your own view of the economic situation will determine whether you would like to take a calculated risk that interest rates will remain low.
It is worth remembering that if interest rates were to fall even further then a variable rate mortgage will allow you to take advantage of this. Whilst most economists do not expect this happen, there are some who do predict a small drop in the Bank of England Base Rate. Research into interest rates and economic conditions in the past will help to shape your own opinion of the likelihood of a rise or fall in mortgage interest rates.
Variable rate mortgage products sometimes come with a discount period - in these situations the lender offers a discount from the standard rate for an agreed period of time - usually anything between 2 and 5 years. These products are often chosen by customers who would like to take advantage of the current low rates and who expect their income to increase via promotion at work or personal development in the near future. Be aware that if you change your mortgage product during any offer period you will usually be liable for a penalty fee. Before making a commitment to a new mortgage it is important to make sure that you fully understand the Terms and Conditions, this could include being able to sell your home and transfer any deals to a new property or being able to swap to a different product from the same provider without incurring any extra charges. Some variable rate mortgages are completely transferrable and will not incur charges if the loan is paid off in part or full, but special discount deals will usually require that you pay a penalty for any changes to your loan during the offer period.
It is usual for the Bank or Building Society to set their Standard Variable Rate at a few points above the Bank of England Base Rate. If you choose a variable rate mortgage then you will be affected by any changes made by the MPC – depending upon the decisions made by the committee this could mean highly or lower monthly repayments. Seeking professional advice about the best mortgage for your individual situation may save you money in the short, medium and long term.
