Four ways a mortgage can be built

A mortgage's interest rate is set by one of four structures: fixed, tracker, discount or standard variable rate (SVR). Each one connects to the base rate (Bank Rate) differently, so the same Monetary Policy Committee (MPC) decision can reach one homeowner within weeks and leave another borrower untouched for years.

Tracker mortgages

A tracker mortgage is priced as the base rate plus a fixed margin set out in the mortgage offer, so the rate moves automatically whenever the MPC changes the base rate. The move typically reaches the payment within one to two billing cycles; the lender's terms and conditions state the exact number of days.

Discount mortgages

A discount mortgage is priced as the lender's standard variable rate (SVR) minus a fixed discount for a set period, so it moves only when the lender changes its SVR, and the SVR does not have to move by the same amount as the base rate or on the same day. The discount itself stays fixed for the agreed period; what moves underneath it is the SVR.

Standard variable rate (SVR)

An SVR is the rate a lender charges once an introductory deal ends, set by the lender. Lenders usually review it after an MPC decision but are not obliged to change it by the same amount, on the same date, or at all, which is why two lenders' SVRs can drift apart after the same base rate move.

Fixed-rate mortgages

A fixed-rate mortgage holds the same interest rate for an agreed period regardless of what the base rate does during that time. The base rate reaches a fixed deal only when the fixed period ends and the borrower moves onto a new rate, whether that is a new fix, a tracker, or the lender's SVR.

A worked example

The figures below are illustrative; a reader's own mortgage balance, margin and lender terms will differ. Take a tracker mortgage of £150,000 set at base rate plus 0.75 percentage points, on a repayment basis with 20 years remaining. If the base rate rises by 0.25 percentage points, the mortgage rate rises by the same 0.25 points, and the lender recalculates the monthly payment on the new balance and rate. The change in pounds depends on the remaining term and balance, which is why two trackers moving by the same rate rise change by different amounts each month.

How a rate change works its way through to the account, and the typical lag lenders build into that process, is covered on how a base rate change reaches your money. The current base rate and the date of the last MPC decision are on the base rate now.