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Should you opt for a variable rate?

Journalist: Frances Ivens, Telegraph

ended 03. July 2023

From January-April, 13% of new mortgage deals were taken out as variable rates according to UK Finance.

As rates continue to rise - and two-year swap edges to 6%- is now taking out a variable the right option? 

When is it a good idea and when would it be better to opt for a fixed rate?

7 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Judging when rates will stop rising is becoming increasingly difficult because Andrew Bailey AKA The Plank of England, seems to be doing everything he can to throw the country into recession. Many people opted for a variable over the last few months thinking the terminal rate would be around 4.5%. Under a different governor, that might have been the case. Surely even Baily cannot continue piling unnecessary pressure on households so I would suggest rates shouldn't go much higher and, therefore, a variable is the way to go to profit from rates in reverse later in the year.
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Rohit Kohli
Director at The Mortgage Stop
I think it entirely depends on each client's circumstance and their perspective on risk. This hasn't changed since this financial crisis began. For example, I recently completed a mortgage for a couple who were both young professionals - one was in his final year of training as an accountant the other in law. Their income is likely to grow significantly in the coming years, especially once out of training and fully qualified - for them a variable rate worked as they have potential growth in their budget and protecting them against rate rises. On the other hand, I've also just helped a client who, despite earning a good salary, was very concerned about where rates were going and wanted that certainty that he could budget for the next 5 years no matter what. There is no one answer to this question if we are advising our clients properly.
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Elliott Culley
Director at Switch Mortgage Finance
Discount variables and trackers will be worth serious consideration at this point as you can certainly find an initial cheaper deal. You do have the jeopardy that the rate can rise, so if your circumstances demand stability and knowing what you are paying then a fixed rate is most likely the right option for you. The forecasts are for some more rises between now and the end of the year, but for some, there will be initial savings that can be made on a discount variable or tracker product, which could be worth the instability of not knowing when or if your rate will rise.
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Jonathan Burridge
Founding Adviser at We Are Money
Borrowers should be focusing on cost not price at the moment. The "right" mortgage product is the one that can be afforded and is fit for purpose. Obviously, no one wants to pay more for something than they need to, but, for many of us a mortgage is a big payment to gamble with. Anyone taking a variable rate needs to be confident that they can afford future rises in case rates continue to rise and do not fall. There is not a "one size fits all" answer, so, take advice, understand the risks and the options and remember no-one knows what tomorrow brings, predictions are either lucky or wrong. Focus on affordability.
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Graham Cox
Director at Bridging Hub
It's definitely worth considering a variable-rate mortgage in my opinion. The truth is, fixed-rate deals are expensive right now, and there's every chance they'll be cheaper in a year or 18 months time.

Discount mortgages, which are discounted to the lender's Standard Variable rate, are a good variable rate alternative. They can be cheaper than the equivalent fix, and also often come with lower Early Repayment Charges, which means you can exit it more cheaply if a much better fix rated product is available in a year or so. The only downside is the monthly payment amount is not certain.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Whether a client should consider a variable rate mortgage or not boils done to the answer to one fundamental question: if rates don't go down and rise further and for longer than you predict, can you still afford to keep your home? As the Truss era mini-budget showed; trying to guess interest rates is no easy task with so many potential variables at play - no one in 2020 was predicting 6% interest rates on fixes by the end of 2022, in fact, no one was predicting that in the summer of 2022 either. Whilst it is very easy to get caught up in a conversation about interest rates and predictions of what will happen to them, we must always remember that, ultimately, it's the clients' home that is at risk and sometimes we need to remind them of that.
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Paul Welch
Founder and CEO at Largemortgageloans.com
Variable rates are for those who can afford to pay them. If the thought of your variable rate increasing keeps you awake at night, then you should opt for a fixed rate. This takes the guesswork out of what interest rates are doing. It’s vital and responsible not to stretch yourself and to go with what you can afford.

If you can’t decide between fixed or variable rate, some lenders will allow you to do both, known as a half and half mortgage. So, you would assign a chunk of your mortgage to a fixed rate deal whilst paying the remainder on a variable rate, giving you a bit more security should rates rise but also providing you with the flexibility of not being tied into a potentially expensive fixed rate, should rates fall.