Best UK Mortgage Rates
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Here are a list and explanation of the most common mortgage rates and a general guide as to when each type may be suitable:
Fixed Mortgage Rates
Some mortgages offer fixed rates. This means that rates are fixed for a set period of time whatever happens to general mortgage rates during that time. At the end of the set period, the rate typically reverts to the Lender's basic mortgage rate, commonly known as the Standard Variable Mortgage Rate.
This may be suitable if you wish to be certain of how much you will pay on a monthly basis in the initial period of your mortgage. You will not benefit from any falls in general mortgage rates during the initial period. Mortgages with fixed rates sometimes have redemption penalties that tie you into staying with the lender for a time after the fixed period after which time they may become uncompetitive.
Variable Mortgage Rates
Variable mortgage rates are generally set at the lender's basic mortgage rate, commonly known as the Standard Variable Mortgage Rate. This will fluctuate from time to time as economic conditions change. With a CAT standard mortgage, the maximum variable interest rate can be no higher than 2% above the Base Rate (i.e. the rate set by the Bank of England).
Usually there are no penalties for early redemption of a mortgage with variable mortgage rates in order to transfer to another mortgage product or to another lender providing you with more flexibility than a fixed rate mortgage. Mortgage rates can go up as well as down and when rates rise sharply, your mortgage payments may increase significantly.
Capped Mortgage Rates
Capped rates are a type of variable mortgage rate set so as not to exceed a particular maximum amount for a set period of time. During the capped period, your mortgage rate will not rise above a predefined rate even if general mortgage rates increase sharply. This means that you are protected from increases in general mortgage rates but you will continue to benefit from any falls in general rates. Typically, you will be locked in for a minimum period in order to compensate the lender for providing the security against increasing rates.
Discount Mortgage Rates
Discount mortgage rates are set at a stated discount to the lender's Standard Variable Rate (e.g. at ½% below the SVR). A mortgage with a discounted rate may be suitable if you wish to keep your early payments to a minimum, for example to free cash to spend on home improvements. Generally, you can expect redemption penalties that tie you into staying with the lender for a minimum period. Often the larger the discount to the Standard Variable Rate, the longer the lock-in period is likely to be.
Tracker Mortgage Rates
Tracker mortgages offer rates that rise and fall in line with a specific benchmark, usually the Base Rate (i.e. the rate set by the Bank of England) or LIBOR (i.e. the standard rate at which banks lend to each other). Tracker rates are expressed as a certain percentage above the benchmark rate. You may consider this to be suitable if you are concerned how a particular lender's variable mortgage rates may deviate from the general rates, especially if you are locked-in to a particular lender for an extended period. You should be protected from adverse conditions that affect your particular lender without affecting the market as a whole.
Daily Interest Mortgage Rates
Typically, lenders calculate interest payments for a particular month by applying the rates to the outstanding mortgage balance at the start of the month. With a Daily Interest Rate Mortgage, the lender calculates the interest each day based upon the balance the daily balance. This may be applicable if you think you may from time to time repay your mortgage part way through a month. It would be particularly relevant with a flexible mortgage that allows you to reduce or increase your mortgage on a regular basis.
