These are offered by lenders to attract new customers. For an introductory period, you will be offered an interest rate at a percentage below the lender’s standard rate.

For instance, you may take out a 1.5% discount for two years. During these two years, as the Bank of England base rate changes, so too should your lender’s Standard Variable Rate. Your discounted rate will rise and fall in line with the lender’s rate, maintaining a 1.5% rate lower than the standard rate. Deals typically last between six months and five years. The shorter the period offered, the bigger the discount will be.

At the end of the discounted period, the rate will revert to the lender’s Standard Variable Rate, so beware of redemption penalties that tie you into a deal beyond your introductory period. The larger the discount offered, the more likely the lender is to want to tie you into a deal with penalties.

Some lenders offer stepped discounted rates. This may include, for example, a large initial discount for six months, then a smaller discount for two years.

Advantages

Discounted rate mortgages are some of the most competitive on the market. The discounts can be quite large, freeing up money for initial household costs.

They can be more competitive than fixed rates as lenders know that if interest rates rise, they will benefit.

You will benefit from any fall in the Standard Variable Rate with lower monthly repayments.

Disadvantages

You have no control over interest rate rises.

If rates have risen dramatically you have to find the extra money when your discount period ends.

Early redemption penalties can be severe and can extend beyond your discount period.