Variable Rate Mortgages

Whilst most new mortgages are entered into under a fixed rate agreement, existing mortgages usually continue under variable rates. What this means in simple terms is that the rate changes in line with the Bank of England’s base rate, which it will typically exceed by around two percent.

There are advantages and disadvantages to variable rate mortgages relative to fixed rate mortgages or any variations thereof. The prime benefit of a fixed rate agreement is that borrowers know that their repayments will not change and are therefore able to plan ahead. This is especially useful when the task of meeting one’s mortgage commitments is particularly onerous and any increase in the repayment amount would place one’s ability to keep up payments into jeopardy. Where a variable rate arrangement differs is that the amount paid by the borrower adjusts itself with the base rate. Whilst this can reduce as well as increase, it does still have the potential to create uncertainty.

Although the Bank of England base rate is the measure by which variable rate mortgages are set, it is the within the gift of the lender to pass on or not to pass on increases or reductions in that rate to the customer.