Back in June and September last year we voiced concern over Lender standard variable rates. We advised you to proceed with caution. The problem is still present. Not only are many existing borrowers staying put, but we are also receiving many calls from confused First Time Buyers who are being fooled into ultra-low attractive variable rates, confusing these with tracker mortgages.

HSBC 2 Year Discount Special | 2.29% (Correct as at 05/02/2010)

ABBEY 2 Year Tracker | 2.49% (Correct as at 05/02/2010)

When you choose to go onto a variable rate mortgage you are at the mercy of the bank. They are the mousetrap mortgage at present and articles like this from the BBC do nothing to help distinguish the confusion. Put simply; a 'standard variable rate' or 'variable rate' is a mortgage rate controlled by a bank. A 'base rate tracker', also known as a 'tracker' is a mortgage rate controlled by the Bank of England. The difference between the two? Well you might want to read on, because you may be shocked.

I'm sure you have seen the adverts for savers. If you look hard enough it's easy to find savings rates of 3%, even 4.5%. When you consider the base rate is so low, how are banks able to offer such attractive rates to savers? The answer is that they are funding them through mortgage borrowers (Source). Skipton Building Society were well documented as the first lender to increase their standard variable rate and to rewrite their own rule book in place on variable rate policy (see the previous source). This should send a clear message to borrowers that variable rates are not as secure as the base rate.

Let's look at our two snapshot examples above. We have had many borrowers contact us this week about the HSBC deal. Two factors will make the HSBC rate less attractive right now in comparison to the Abbey rate, despite the difference in the two interest rates. We have mentioned these factors already, here is the summary:

1. Due to a lack of funding and lending between banks, variable rates are at risk of rising to compensate and fund savers. Even current variable rate limitation policies could be changed as Skipton have proved this is possible. Savers are currently the major source of mortgage funding generation for many banks & building societies.

2. Base rate controlled mortgages are the only way to ensure that any upward movement in interest rates is linked in with a measured percentage point increase in relation to the Bank of England base rate.

Here at mortgagebtl.co.uk we heed the same advice as before. Try to avoid the lure of the 'discounted variable mortgages' or 'Discount Special' mortgages. Read the small print, does it track the Bank of England base rate? No? Then don't touch it. These products hold about the same appeal as a primed mouse trap. If you want to check your options and deal with one of our experts, then simply enter the mortgage you require in the box below this article or call us.