Variable rate mortgages

Variable rate mortgages are mortgages that charge interest at a level based on the base rate as set by the Bank of England.

Typically, a variable rate mortgage will charge the base rate plus a further charge, often of around three per cent. If the base rate falls then so should the level of interest charged on your mortgage. If the base rate rises then you can expect the rate your mortgage is charged at to also increase.

However, mortgage lenders have discretion to decide if they should increase or reduce the interest charged as the base rate changes and they can also decide if the rate goes up or down by the same amount as the change in base rate.

Unsurprisingly, many lenders don’t always pass on the reduction in base rate in full or even at all to customers and if they do the reduction is often less than the reduction in base rate. However, when base rate rises most lenders are quick to increase their rates and usually by the full amount.

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