What is a Discounted Variable Mortgage?

By Kristian Derrick

Last Reviewed: 5th October 2023

According to Statista, mortgage rate increases broke records in 2022, seeing the Bank of England introduce several bank rate hikes that resulted in higher mortgage rates.

With increasing mortgage rates, many Brits have looked into switching mortgage deals to enjoy better rates.

New deals have hit the market, and you might even find yourself shopping around for better options.

What happens if you come across a variable rate mortgage? Should you get one, or are there more viable mortgage types for you?

You may even wonder if you should consider tracker mortgages or SVR mortgages (Standard variable rate) before considering a discount variable rate mortgage.

One of the biggest driving forces behind switching mortgage types is costs, and if you’re looking to save and think that a discount variable rate mortgage is the way to do that, there are a few things you’ll need to know about this kind of mortgage first.

How Discounted Variable Mortgages Work in the UK

The first thing you should be aware of as someone on the property ladder is that all mortgage companies have what’s called a standard variable rate.

This is an interest rate that the lender itself determines.

The Bank of England’s base rate then influences how the lender’s interest rate fluctuates, but it’s not strictly linked to that base rate.

If you are on a tracker or fixed-rate mortgage, and the initial term ends (usually 2 to 5 years), your mortgage will revert to a standard variable rate.

You can remortgage when that happens or just before.

For many, a discounted variable rate mortgage is alluring because it sets the interest you’ll pay at just below the provider’s standard variable rate for a set term.

The interest rate isn’t fixed, though, so it will rise and fall as the mortgage provider’s standard variable rate does.

In this way, discounted variable mortgages work rather similarly to tracker mortgages.

Of course, they’re not tracking the Bank of England’s base rate but rather the lender’s standard variable rate at a discounted amount.

An example of how a discounted variable rate mortgage works:

  • Your lender has a standard variable rate of 3%, and if you’ve been given a 1% discount, you’ll be paying 2% interest.
  • If the lender’s rate suddenly increases to 4%, your interest rate will increase, but only to 3%.
  • Mortgage providers can fluctuate their interest rates at any time.

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How Discounted Variable Rate and Tracker Mortgages Compare

You’ll find that discounted variable rate mortgages and tracker mortgages have a similar format, but there’s one area where they are different.

A tracker mortgage will closely follow the base rate of interest put out by the Bank of England.

The result is that borrowers on this type of mortgage often enjoy a lower interest rate than other mortgage types.

Discounted variable rate mortgages are different in that they track the mortgage provider’s standard variable rate.

Essentially, this means that they can sometimes be cheaper than standard variable rate mortgages, but the rate can jump and fall without warning, unlike tracker mortgages.

Pros and Cons of Discounted Variable Rate Mortgages UK


Not all discounted variable rate mortgages in the UK are the same.

The products may have differences, but here are some of the most common associated advantages to expect:

  • If the Bank of England happens to reduce its interest rate and your lender responds by dropping its interest rate, you could benefit from an even lower interest rate.
  • As long as your deal is in place, your interest rate will be lower than your mortgage provider’s standard variable rate.
  • Associated early repayment charges are usually lower when you have a discounted variable rate mortgage. This is beneficial if you wish to pay a little more each month to pay down the debt sooner.


  • Monthly instalments on a discounted variable rate mortgage are not fixed, meaning that even half a per cent rise in the interest rate could increase your monthly instalment exponentially.
  • Fluctuating mortgage payments can make it hard to budget each month.
  • Lenders typically apply a collar to discounted variable rate mortgages. This is a limit to the level that your interest rate can drop to.

Costs Associated with UK Discounted Variable Rate Mortgages

All mortgages come with fees, but discounted variable rate mortgages come with additional fees that some other mortgages simply don’t have.

Before acquiring a discounted variable rate mortgage, check that the fees won’t negate any anticipated savings.

Some fees to enquire about include the arrangement or establishment fee and any penalties you might face, such as early repayment charges and exit fees.

To get the best possible deal, it’s always recommended to use an experienced mortgage broker who can find the best deals and investigate the fees before you sign anything.

A mortgage broker can also advise you if the discounted variable rate mortgage is best for your specific financial situation and affordability.

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What To Do If I Can’t Afford My Discounted Variable Rate Mortgage Instalments?

Sometimes life and finances become a bit challenging and the fluctuating interest rate of a discounted variable rate mortgage can become difficult to afford.

In such an instance, there are various courses of action you can take.

  • Remortgage and move onto a different mortgage deal – this could incur early repayment charges
  • Switch to an interest-only deal
  • Take a break from your repayments

All of these will help you immediately experience financial relief, but may increase the overall cost of your mortgage in the long run.


What Are Variable Mortgage Rates UK 2023?

It’s difficult to pinpoint an exact variable mortgage rate UK 2023 as each lender determines their own variable rate.

That said, the common average variable mortgage rate is around 8%.

What is a Discounted Standard Variable Rate Mortgage?

This is a type of variable rate mortgage with an interest rate that’s discounted from the lender’s standard variable rate, but still follows its fluctuation patterns.

How Long Are Typical Discounted Variable Rate Mortgage Terms in the UK?

In the UK, discounted variable rate mortgage terms usually run for 2 to 5 years before the deal will revert to a standard variable rate mortgage, or the borrower can remortgage.

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