Barclays

An introduction to variable rate mortgages

What this guide covers

This guide explains variable rate mortgages and what to consider when deciding the right mortgage structure for you.

We also have guides on fixed rate mortgages and mortgage advice.

What is a variable rate mortgage?

The interest you pay on a variable rate mortgage can go up or down each month. It is usually based on the Bank of England base rate of interest.

When the base rate rises or falls, then variable rates tend to move similarly.

For example, if the base rate rises by 0.25% then most variable rate mortgages will do the same.

Different types of variable rate mortgage

Standard variable rate (SVR)
Our SVR applies to a mortgage that has reached the end of its fixed or deal period.

The SVR is the rate of interest on a mortgage, and is almost always set a few percentage points above the Bank of England base rate.

When the base rate changes then, usually, so does the SVR. However, unlike a tracker, there is no obligation on the lender to change the SVR when the Bank of England base rate moves.

Discount mortgage (subject to availability)
The interest rate is based on the SVR, but is discounted for the first couple of years. For example, if the lender's SVR is 5% above the Bank of England base rate, then for the first two years of your mortgage the lender might offer a rate of SVR discounted by 1% i.e. only 4% above the Bank of England base rate.

Discounted mortgages can be popular with first-time buyers because they cost less during the discounted period and then revert back to the SVR at a later stage.

An arrangement fee and early repayment charge may apply.

Tracker mortgages
The interest rate of a Barclays International tracker mortgage is the Barclays Bank Base Rate (BBBR).

The main advantage of a tracker mortgage is that when the base rate is low the tracker rate will reflect this. Conversely, when the base rate is high, the tracker will be high too.

There are no early repayment charges on this type of mortgage, so it can enable you to make large repayments if you want.

Capped (subject to availability)
A capped mortgage is variable but with a limit as to how high the interest rate can go. It provides some reassurance in terms of how much your monthly mortgage payments will be.

See our interest rates.

Early repayment charges (ERCs)
ERCs may be incurred if you repay or overpay a mortgage during a fixed term. This is because the lender has provided a lower priced or a guaranteed rate of interest, and in return you have to provide a level of commitment.

What type of mortgage is best for you?

The best type of mortgage for you will depend on a number of factors, including:

• Flexibility. A tracker or SVR will provide the greatest flexibility in terms of making early repayments or larger than required monthly payments.
• Interest rates. If you believe that interest rates will rise then you might want to lock in the interest rate of your mortgage for the next few years with a fixed rate. However, if you feel that the interest rates may go down during that fixed period then a variable rate mortgage might be more prudent.
• Your financial capacity. If you are financially able to cope with possible increases in interest rates, then you might be better off getting a variable mortgage as it could be more cost effective and offer greater flexibility.

The main alternatives to variable rate mortgages

Fixed rate mortgages
A fixed rate mortgage guarantees the interest rate that you will pay for the first two to five years. Some Barclays International clients can get a fixed rate period lasting longer than this.

This gives you some certainty over your monthly mortgage payments, but it does mean that you would not benefit from any drop in interest rates.

Important
If you do decide to take a mortgage with a fixed period at the beginning, then make sure you are prepared for the end of this period when the interest payments may increase.

Choosing between a repayment and an interest-only mortgage

Repayment mortgage
The amount you pay each month on a repayment mortgage covers both the interest charged and the capital borrowed. This means that at the end of the mortgage term you will have cleared the mortgage.

Interest-only mortgage
An interest-only mortgage has lower monthly payments, which can help you control your cash flow. However, you will have to make separate arrangements to repay the capital borrowed at the end of the mortgage term. These usually take the form of investments, and Barclays International can help you set these up.

How much can you borrow and what will it cost?

The answers to these questions are different for everyone as they depend on your individual circumstances.

That is why Barclays International begins the mortgage process by asking a series of questions so that we can select an affordable mortgage with the right structure for you.

See our interest rates.

Other information

Mortgage fees and charges
The charges and fees that you will have to pay during the lifetime of a mortgage include:

• Arrangement fee. This is charged by the lender, and covers the administration costs of setting up your mortgage.
• Valuation fee. This confirms the value of the property that you want to buy.
• Early repayment charges. These can be incurred if you repay early during the fixed term of some mortgages.
• Final repayment fee. This covers the legal and administrative charges of closing out the mortgage.

Surveys
A survey can assess the value and structural integrity of the property. Barclays International offers a range of reports with different levels of detail.

• Barclays valuation. This assesses the value of the property and states its overall condition.
• Barclays survey and valuation. As well as the valuation and assessment, this pays attention to areas that need immediate or significant repair work.
• Barclays building survey. This covers all elements of the property and is the most thorough level of investigation that Barclays International offers its clients.

With each level of report, Barclays International will also include advice on saving energy, property maintenance, security and fire safety.

Taxes
Capital gains tax. If you sell a property in the UK that is not your primary residence then you might have to pay capital gains tax.

Stamp Duty Land Tax. Normally this is charged as follows:

• No charge for properties up to £125,000
• 1% on properties between £125,000 and £250,000
• 3% on properties between £250,000 and £500,000
• 4% on properties over £500,000

Your national and personal tax considerations. You will also need to take into account your personal, financial and domicile status when considering your tax liabilities. Barclays International is happy to introduce clients to its preferred professional tax advisers, Ernst and Young.

Insurance
You are required to make sure that your property is covered for buildings insurance. Possessions would need to be covered by separate contents insurance.

Terms used

Base rate. This is the Bank of England interest rate on which most variable rate mortgages are ultimately based.
Remortgage. A remortgage is put in place when you take out a new mortgage to pay off an old mortgage from another lender.
Standard variable rate (SVR). This is the most flexible mortgage that Barclays International provides. The interest rate follows the base rate, but unlike a tracker mortgage, the lender is not obliged to change the interest rate on an SVR.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

If your loan is denominated in a currency other than sterling CHANGES IN THE EXCHANGE RATE MAY INCREASE THE STERLING EQUIVALENT OF YOUR DEBT.

For more information or to apply

To apply or find out more information speak to a Barclays International Mortgage Adviser. We specialise in providing a range of residential/investment mortgages for property purchases in the UK, Jersey, Guernsey, Isle of Man and Gibraltar.

Call us on +44 (0)1624 684305†

Alternatively please contact your Barclays International Relationship Manager, if you have one.