Capped Rate Mortgages

The mortgage market offers many different types of products, with each one potentially affecting how much your monthly repayments will be. As a result, picking the right mortgage is one of the biggest decisions you’ll make before buying a house.

A capped mortgage is one option available, which we explore here in terms of what they are, their benefits and drawbacks, and which lenders offer them. Finally, we outline how a broker can help find the best deal for you.

What is a capped rate mortgage?

These products work similarly to standard variable rate mortgages (SVRs). Your provider sets the interest rate charged, which can go up or down. Your payments can therefore fluctuate according to what interest rate your provider sets that month. However, in comparison to SVRs where your interest rate can keep increasing, with a cap, the rate has an upper limit. It means you will know the maximum rate you can ever be charged.

Like other types of mortgages, a capped rate product will have an agreed period – which is another difference to an SVR. Capped mortgages usually last between 2 and 5 years. At the end of the term, you can move to another mortgage type or to your provider’s standard variable rate.

What is a capped and collared mortgage?

With this type of product, there is not only an upper limit (the cap) on the interest rate charged, there’s also a lower limit (the collar). It means that while you can protect yourself against an ever increasing mortgage payment, your provider can protect itself against interest rates going down by so much that their profits are hit.

Benefits and drawbacks

There are several advantages to a capped mortgage, but they’re not without their drawbacks either. It’s crucial to consider all pros and cons in relation to your own financial situation to ensure that this is the right product for you. A broker could help you work through other options available so you get the best possible deal.

How a broker can help you find the best capped rate mortgage deals

Picking the most suitable type of mortgage for you is vitally important. Getting it right means you can save money while also finding a payment structure that works for your situation. Variable rate mortgages aren’t suitable for everyone, but a broker can help work through the decision with you.

If you do decide that a capped mortgage is most appropriate, their help can prove invaluable especially as there are fewer of these products available. With their whole-of-market knowledge and experience, they can help identify the provider who will offer you the best rate in light of your product type and other factors in your application such as deposit amount, credit history and income. Plus, they’ll ensure that the provider they suggest offers you the best terms and conditions. With a capped mortgage, that will mean securing a loan with the lowest cap possible, with the initial rate offered being low too.

Get in touch and we’ll connect you with a broker who specialises in capped rate mortgages today.

Which lenders offer them?

The majority of high street lenders don’t always offer variable rate capped mortgages, but a number of specialist – less well known – lenders certainly will.

A broker who specialises in these products will know exactly where to look and have access to what deals and rates are currently available. Seeking a specialist’s advice is therefore your best bet if you think you want a variable rate product with the protection of a cap.

What are the typical interest rates?

Currently, the Bank of England base rate is 5.25% (November 2023), with SVRs (upon which capped mortgages are based) generally being between 2% to 5% higher than that. However, the base rate will change depending on the economic environment and, as a result, mortgage interest rates will change too.

Speak to a broker who specialises in capped rate mortgages

Getting the best rate for a mortgage, but also the best type of product, is crucial to ensuring your mortgage remains affordable. However, picking the most suitable provider who offers terms and conditions that work for you is a tough ask on your own – especially if you are looking for the protection of a capped variable rate mortgage.

Working with a broker who specialises in this type of mortgage can help you as their depth of knowledge will be able to pinpoint the right product and lender for your financial situation. They will know what lenders could offer you a capped rate, and will only ever suggest a provider and mortgage for which you are eligible so that you improve your chances of being approved the first time. Plus, their help ultimately makes the entire application process less stressful thanks to their experience.

Our free, no-obligation broker matching service can put you in touch with an expert who can help you identify the best capped mortgage product for you. Call us on 0808 189 2301 or make an enquiry with us today so we can connect you.