Unlike a tracker mortgage which is linked to the Bank of England base rate and only moves if there are any changes to that, a discounted rate mortgage is linked to a lenders own Standard Variable rate or SVR, at the time of writing this, the SVR varies enormously between lenders and could be 9% for one lender and 7.49% for another. The discounted rate mortgage does exactly what it says on the tin, it gives you a discount of say 2% off the SVR for 2yrs or 1.5% for 5 yrs, but it is important to note that these rates are variable which means they can go up or down at any given time.
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The Standard variable rate of a lender is set according to their own business needs and can be changed at any given time, following high level internal meetings or reactions to external events, historically the SVR of a lender does not automatically follow changes in the Bank of England base rate but just over the last few years this seems to be changing especially when rates are going up. If a lender increases their SVR, then by virtue of being pegged to this a clients discounted rate mortgage will also increase but it will always be behind it by the discount offered, example: lenders SVR is 8%, client is offered a 2% discount for 3yrs giving a pay rate of 6%, when this lenders SVR goes up to 8.5% then the clients pay rate will go up to 6.5%, this is okay if you have the financial means to cope with rate rises.
There could be good reasons to choose a discounted rate such as cheaper early repayment charges if you need to change your mortgage or lower fees associated with them but the risk is always that these rates can go up every month, month after month without a seemingly valid reason and before you know it your mortgage payments are unaffordable.
Discounted rates are dominant in the building society sector rather than the banking sector.
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