Last reviewed: June 2026
TL;DR- Variable rate mortgages include standard variable rate (SVR), tracker and discount products - each sets and moves the rate differently.
- SVR is set at the lender's discretion and can move independently of the Bank of England base rate.
- Tracker mortgages follow the base rate by a fixed margin; discount mortgages set the rate at a fixed discount to the lender's SVR.
- Variable rate products often carry no early repayment charge, providing more flexibility than fixed rate deals.
The Three Main Types of Variable Rate Mortgage
Variable rate mortgages in the UK fall into three main categories, each with a different mechanism for setting and changing the interest rate:
- Standard Variable Rate (SVR): the lender's default rate, set at the lender's discretion. SVR is the rate that applies when an initial deal period - fixed or tracker - ends and the borrower has not remortgaged. SVRs are typically the highest rate a borrower will pay with a given lender.
- Tracker: the rate is set as a fixed margin above the Bank of England base rate and moves automatically when the base rate changes. The margin does not change during the tracker period.
- Discount: the rate is set as a fixed discount below the lender's SVR. If the SVR is 7% and the discount is 2%, the pay rate is 5%. If the SVR moves to 6.5%, the pay rate moves to 4.5% automatically.
Standard Variable Rate in Detail
SVR is the rate lenders charge on their standard mortgage book, typically applied to borrowers who have come off an initial deal period and have not remortgaged. SVRs are set by the lender independently, though they broadly follow the direction of the Bank of England base rate. The spread between the base rate and SVR varies by lender and has generally widened over time.
Remaining on SVR is rarely the most cost-effective option for borrowers who could qualify for a new fixed or tracker deal. The FCA has noted in research on the mortgage market that a significant proportion of borrowers remain on SVR longer than is in their financial interest, often due to inertia or uncertainty about the remortgage process.
Discount Mortgages
A discount mortgage sets the pay rate as a fixed discount to the lender's SVR. The discount is fixed for the deal period, but because the SVR itself can move at the lender's discretion, the pay rate is still variable. A discount deal does not provide the same degree of payment predictability as a tracker, where the reference rate (the base rate) is an external and transparent benchmark. If the lender raises its SVR independently of base rate movements, a discount deal borrower's pay rate rises accordingly.
Flexibility and Early Repayment Charges
Variable rate mortgages - particularly trackers and discount deals - frequently carry no early repayment charge (ERC) during the deal period, making them more flexible than fixed rate products for borrowers who may want to remortgage, overpay or sell during the deal period. SVR rarely carries an ERC as the borrower is on the lender's reversionary rate with no contractual commitment to remain.
The absence of an ERC means variable rate borrowers can switch to a fixed rate if rates begin to rise without paying a penalty, though timing this switch optimally is difficult and rates may already have moved before a new deal completes.
Assessing the Risk
The primary risk of a variable rate mortgage is payment uncertainty. If the Bank of England raises the base rate - or if a lender raises its SVR independently - monthly payments increase, potentially materially. The FCA's affordability assessment for variable rate mortgages includes a stress test at a rate above the product rate to assess whether the borrower can manage higher payments. Borrowers considering variable rate products should model the impact of rate increases on their monthly budget before committing.
Frequently Asked Questions
Can a lender raise its SVR whenever it chooses?
Yes. SVR is set at the lender's discretion and can be raised or lowered at any time, subject to the notice provisions in the mortgage terms and conditions. Most lenders notify borrowers of SVR changes before they take effect. SVR movements do not need to correspond to Bank of England base rate decisions.
Is a variable rate mortgage suitable for a first-time buyer?
This depends on individual circumstances, financial resilience and risk tolerance. First-time buyers with limited income headroom may find payment uncertainty uncomfortable. Those who value flexibility - for example, if they plan to sell or significantly overpay within a few years - may find the absence of an ERC on a tracker or discount deal attractive. A regulated mortgage adviser can assess which structure is appropriate for specific circumstances.
What is the difference between a tracker and a discount mortgage?
A tracker follows the Bank of England base rate by a fixed margin - so the reference rate is external and transparent. A discount mortgage sets the pay rate at a fixed discount to the lender's own SVR - so the reference rate is internal and can be changed at the lender's discretion. Tracker borrowers have more certainty about how and when their rate will move.
Do variable rate mortgages allow unlimited overpayments?
Many variable rate mortgages - particularly those on SVR - allow unlimited overpayments without penalty. Tracker and discount deal products may have overpayment limits during the deal period. Borrowers should check the product terms before making overpayments above the standard 10% annual allowance.
