Capped Rate Mortgages
Understanding capped rate mortgages - how they work, why they're rare in 2025, and the best alternatives available
What is a capped rate mortgage and are they still available?
A capped rate mortgage is a variable rate with a maximum ceiling - your rate can fall with the base rate but can never exceed the cap. They're extremely rare in 2025 because lenders bear the risk of rate spikes above the cap, making them expensive to offer. Most borrowers now choose between fixed rates (complete certainty) or tracker mortgages (follow base rate with no cap). Some building societies occasionally offer capped products, but they typically have collars (minimum rates) that limit potential savings.
Cap sets a maximum rate your mortgage can reach, protecting against extreme rate rises
Unlike fixed rates, your payments can fall if interest rates drop
Few lenders offer capped mortgages in 2025 - most have switched to fixed or tracker products
How Capped Rate Mortgages Work
Variable Base Rate
Your rate is linked to either the Bank of England base rate or the lender's Standard Variable Rate (SVR), moving up or down as rates change.
Maximum Cap
The cap is a ceiling - if the underlying rate rises above this level, your rate stays at the cap. You're protected from extreme increases.
Optional Collar (Minimum)
Many capped mortgages also have a collar - a floor below which your rate cannot fall, even if base rates drop to zero. This limits your potential savings.
Capped Rate Example
Imagine a capped mortgage at base rate + 1.5% with a cap of 6% and collar of 3%:
| Base Rate | Calculated Rate | Your Rate | Why |
|---|---|---|---|
| 1% | 2.5% | 3% | Collar prevents going below 3% |
| 3% | 4.5% | 4.5% | Normal variable rate applies |
| 4% | 5.5% | 5.5% | Normal variable rate applies |
| 6% | 7.5% | 6% | Cap prevents going above 6% |
Capped vs Other Mortgage Types
| Feature | Capped | Fixed | Tracker |
|---|---|---|---|
| Rate certainty | Partial (max known) | Complete | None |
| Benefits from rate falls | Yes | No | Yes |
| Protection from rises | Limited (cap) | Complete | None |
| Initial rate | Variable | Set for term | Base rate + margin |
| Availability | Very rare | Widely available | Common |
Pros and Cons
Protection against extreme rate rises
Can benefit if rates fall
More flexibility than fixed
Budget for maximum payment
Almost impossible to find in 2025
Often come with collars limiting savings
Less certainty than fixed rates
May have higher initial rates
Alternatives to Capped Mortgages
Fixed Rate Mortgage
If you want certainty, fixed rates guarantee your payment for 2, 5, or 10 years. You won't benefit from rate falls but are fully protected from rises.
Learn more →Tracker Mortgage
Follows base rate exactly (base rate + fixed margin). No cap, but transparent and you benefit immediately from any rate cuts.
Learn more →Split Mortgage
Some lenders let you split your borrowing - part on a fixed rate for security, part on a tracker for flexibility. This diversifies your risk.
Offset Mortgage
Link savings to your mortgage to reduce interest charged. As savings grow, your effective rate falls - a different way to reduce costs.
Learn more →People Also Ask
Find the Right Mortgage Type
While capped mortgages are rare, we can help you find the right balance of certainty and flexibility from today's available products - whether that's a fixed rate for security, a tracker for potential savings, or a combination approach.
Related: Fixed vs Tracker | 2 vs 5 Year Fixed | Best Mortgage Rates