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Survival guide to the changing mortgage jungle

With signs that variable rate mortgages are becoming back in vogue, it is important that mortgage borrowers realise the difference in how discounted or tracker mortgage rates can work. Trackers will follow the Bank of England base rate by a given margin, whereas discounted mortgages can be a discount off the mortgage lender's standard variable rate.

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As we have witnessed with Standard Life Bank's shock move to raise its standard variable mortgage rate while base rates were stable, mortgage lenders are quite within their rights to change their standard variable rates at any time. They are not obligated to pass on all or any of a base rate change.

While the sub prime mortgage market has suffered a major shake up in the last few months, the prime mortgage market remains very competitive, both in the number of products available and the deals on offer. Looking at the true cost of a £200K repayment mortgage over a 25 year period, Moneyfacts.co.uk research reveals there is little difference in the cost of a fixed, variable or discounted mortgage rate. If anything the variable rates have the slight edge at the moment.

If you are considering a variable mortgage rate deal, it might be wise to wait until the market has settled. Comparing a tracker, which is more than likely to have been reduced, to a discount rate linked to the standard variable rate is unlikely to produce fair results. With around 20 lenders announcing their commitment to reduce their standard variable rate so far, there is still plenty of change to come.

With the costs of a fixed rate or variable mortgage deal very similar, there is a competitive deal to suit those looking for the stability of a fixed rate or wanting to take the opportunity of potential rate reductions with a variable deal.

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