Variable Rate Mortgages Explained: Tracker, Discount and SVR Deals
Published 24th of March 2016·Updated 23 April 2026
Reviewed by: Reviewed for accuracy April 2026
A variable rate mortgage is one where your interest rate can change during the deal period, meaning your monthly payment can go up or down. There are three main types: tracker mortgages, which follow the Bank of England base rate; discount mortgages, which offer a reduction off the lender's Standard Variable Rate (SVR); and the SVR itself, which is the fallback rate applied when an initial deal ends.
Short Summary
Variable rate mortgages can be cheaper than fixed deals when interest rates are falling, but they carry the risk of payment increases if rates rise.
Tracker mortgages are the most transparent type of variable deal. Your rate moves in direct proportion to changes in the Bank of England base rate, so you always know exactly why your payment has changed.
Discount mortgages are linked to the lender's SVR rather than the base rate. Because lenders can change their SVR at any time, a discount mortgage is less predictable than a tracker.
Most variable rate deals allow unlimited overpayments and can be exited early with no early repayment charge, giving you more flexibility than a fixed rate mortgage.
What is a tracker mortgage?
A tracker mortgage charges interest at a set margin above the Bank of England base rate. For example, a deal might be described as "base rate plus 1.5%". If the base rate is 4.5%, you pay 6%. If the base rate falls to 4%, you pay 5.5%.
Tracker mortgages move automatically whenever the Bank of England's Monetary Policy Committee changes the base rate. The change takes effect quickly, usually within a month. This transparency is a key advantage: you can monitor the base rate and predict your next payment with confidence.
Most trackers are deal-period products running for 2 or 5 years, after which you revert to the lender's SVR. Lifetime trackers, which run for the full mortgage term, are also available and typically have no early repayment charge.
What is a discount mortgage?
A discount mortgage offers a percentage reduction off the lender's SVR. For example, if the lender's SVR is 7% and the discount is 2%, you pay 5%. The discount is fixed, but the rate you actually pay can change whenever the lender adjusts their SVR.
Unlike tracker mortgages, lenders are not required to move their SVR in line with the base rate, though most will broadly follow it. A lender could technically raise their SVR even if the Bank of England holds its rate, which makes discount deals less predictable than trackers.
Discount deals are typically offered for 2 or 3 years and often come with lower arrangement fees than fixed rate products.
What is the Standard Variable Rate?
The SVR is the lender's default rate, applied when any initial deal (fixed, tracker or discount) ends. Every lender sets its own SVR independently. As of early 2026, most high-street lender SVRs range from 6% to 8%, significantly above current fixed rate deals.
Most borrowers should avoid staying on the SVR for longer than necessary. Remortgaging as soon as your initial deal ends, or switching your rate while staying with the same lender (a product transfer), can save hundreds of pounds per month.
| Mortgage type | How the rate is set | Predictability | Typical ERC |
|---|---|---|---|
| Fixed rate | Set by lender at outset | High - does not change | Yes, often 1-5% |
| Tracker | Base rate + fixed margin | High - changes with base rate | Often none |
| Discount | SVR minus fixed % | Medium - changes with SVR | Sometimes |
| SVR | Set by lender, can change anytime | Low | None |
What are the benefits of a variable rate mortgage?
Variable rate deals often start cheaper than equivalent fixed rates. When the Bank of England base rate is falling or expected to fall, a tracker mortgage lets you benefit automatically from each reduction without having to remortgage.
Most tracker mortgages and many discount mortgages allow unlimited overpayments and impose no early repayment charge. This flexibility suits borrowers who may want to overpay aggressively, sell their property mid-term or remortgage quickly if a better deal appears.
During the period from 2009 to 2022, the base rate stayed below 1% for most of the time. Borrowers on tracker mortgages during this period paid very low rates without the need to fix and refinance repeatedly.
What are the risks of a variable rate mortgage?
Your payments can rise. Between August 2021 and August 2023, the Bank of England base rate increased from 0.1% to 5.25%. A borrower on a tracker at base rate plus 1% would have seen their rate jump from 1.1% to 6.25% in less than two years.
On a £200,000 repayment mortgage over 25 years, that increase would have raised monthly payments from roughly £780 to around £1,330. Not every household can absorb that kind of change. Before choosing a variable rate deal, stress-test your budget against a rate that is 2 to 3 percentage points higher than the current rate.
Discount mortgages carry the additional risk that the lender can move their SVR independently of the base rate, adding a further layer of uncertainty.
Is a variable rate mortgage right for me?
A variable rate mortgage suits borrowers who have comfortable financial headroom, who want flexibility and who believe interest rates are likely to fall during the deal period. If your budget is tight or the thought of a higher payment would cause serious difficulty, a fixed rate offers more security.
If you are planning to sell your property within two to three years, a tracker with no early repayment charge is often the most cost-effective option, as you avoid the exit penalties common on fixed deals.
Speak to a whole-of-market mortgage broker before deciding. The right answer depends on current rate expectations, your financial resilience and your plans for the property. Citizens Advice and MoneyHelper (moneyhelper.org.uk) both offer free impartial mortgage guidance.
Can I switch from a variable rate to a fixed rate mortgage?
Yes, but check whether your current deal carries an early repayment charge before switching. Most standard tracker mortgages have no ERC, making it straightforward to switch to a fixed rate at any time. Discount mortgages sometimes carry exit penalties during the deal period. If you are on the SVR, you can switch freely with no charge.
What happens to my tracker mortgage if the base rate goes to 0%?
Most tracker mortgages include a "collar" (minimum rate floor) which means your rate cannot fall below a certain point even if the base rate drops to zero. Check your mortgage terms for a collar clause. If your deal has no collar and the base rate fell to zero, your rate would simply be the tracker margin itself.
Is a tracker mortgage safer than a fixed rate?
Neither is inherently safer. A fixed rate protects you from rate rises but prevents you from benefiting from rate falls. A tracker does the opposite. The safer choice depends on your financial resilience and your view on where rates are heading.
What is a 'lifetime tracker' mortgage?
A lifetime tracker follows the base rate for the full term of the mortgage rather than just for a short deal period. Lifetime trackers generally have no early repayment charge, which makes them very flexible. However, you are exposed to rate movements for the entire mortgage term, which could be 25 years or more.
How often do lenders change their Standard Variable Rate?
Lenders typically change their SVR after Bank of England base rate decisions, but they are not obliged to. A lender can raise or lower their SVR at any time for any reason, subject to giving you notice. This is why the SVR is the least predictable variable rate product.