Standard variable rate mortgages
If you’re coming to the end of a discount, fixed or tracker mortgage deal, it’s likely you’ll be moved onto your lender’s standard variable rate mortgage. But what does this mean for your mortgage repayments and will you be better off switching to a new deal?
If you’re coming to the end of a discount, fixed or tracker mortgage deal, it’s likely you’ll be moved onto your lender’s standard variable rate mortgage. But what does this mean for your mortgage repayments and will you be better off switching to a new deal?
What is a standard variable rate mortgage?
You’ll usually be moved to a standard variable rate mortgage (SVR) once the introductory deal on a discount, tracker or fixed mortgage ends.
The SVR is the default interest rate that you’ll be charged once your introductory deal comes to an end. Lenders set their own SVRs – typically between 2% and 5% above the Bank of England base rate – so it could differ depending on who your mortgage is with.
As you can guess by the name, a variable mortgage rate means that the interest you pay can go up or down. This is because the standard variable rate moves roughly in line with the Bank of England’s base interest rate.
The interest rates on SVR mortgages tend to be higher than other types of mortgage – so if you don’t switch or remortgage once your introductory deal ends, your monthly repayments could be increase significantly.
How does a standard variable rate mortgage work?
When you make your mortgage repayments, part goes towards paying off your mortgage, while part goes towards the interest set by your lender.
Unlike tracker mortgages, SVRs don’t track the Bank of England base rate at a set percentage. Your lender gets to decide the rate you pay.
So, if the Bank of England base rate goes up by 1%, your lender could choose to:
a) increase its SVR by 1%
b) increase its SVR by more than 1%
c) increase its SVR by less than 1%
d) make no changes to the SVR (unlikely)
e) decrease its SVR (even more unlikely)
If your lender increases its SVR, your monthly mortgage repayments will go up. The extra money you pay goes towards the higher interest, so paying more doesn’t mean you’ll be paying off your mortgage sooner.
If you’re on a standard variable rate mortgage, you need to be sure you can cover the monthly repayments if they increase.
Your home may be repossessed if you do not keep up repayments on your mortgage.
How long does a standard variable rate mortgage deal last?
Standard variable rate mortgages tend to be more flexible and don’t have the same restrictions as fixed-term mortgages. This means that you won’t be locked in for a certain length of time. In most cases, you’re free to move to a better deal without having to pay an early repayment charge.
What are the pros and cons of a standard variable rate mortgage?
Pros:
- usually no early repayment charge, so you can overpay or pay off your mortgage early or remortgage to a better deal without any penalties.
- arrangement fees are typically lower than tracker or fixed-rate mortgages – in some cases, you might not be charged an arrangement fee at all.
- if interest rates go down, you monthly repayments could go down.
Cons:
- SVRs tend to be the most expensive type of mortgage – so you could be paying far more in interest than other types of mortgage.
- if you move onto your lender’s default SVR mortgage after an initial deal has ended, your monthly repayments are likely to be a lot more.
- if interest rates go up, so will your mortgage repayments.
- your lender can choose to change their SVR at any time – this could mean a sudden hike in your monthly repayments.
- if you can’t afford the increase in repayments, your home could be at risk of repossession.
- by sticking to standard variable rate rather than remortgaging or switching to a better deal, you could end up paying thousands more than you need to.
When might an SVR mortgage be right for me?
There may be occasions when an SVR mortgage could be useful. For example, if you’re moving home and you’ve not yet found a decent portable mortgage or your moving date doesn’t correspond with the end of your current mortgage.
An SVR mortgage gives you the time and flexibility to choose a better mortgage deal without the worry of overpayment or early repayment fees. So, in this case, an SVR mortgage might be a suitable short-term solution.
Comparing mortgages
The uncertainty of a standard variable rate mortgage can make it hard to budget each month. If you’d prefer to know exactly how much your repayments will be, you might be better off on a fixed-rate mortgage deal.
Just remember, when the deal period ends you’ll be moved onto the lender’s SVR, so it’s a good idea to arrange a new deal at the end of your fixed-rate term.
Comparing mortgage deals through us is quick and simple. We’ve also partnered with leading mortgage advisers London & Country Mortgages Ltd (L&C)**, who offer expert fee-free advice to help you find the best mortgage to suit your needs.
Go to L&C MortgagesAbout London & Country Mortgages Ltd (L&C)
London & Country Mortgages Ltd (L&C) are a multi-award winning mortgage broker with over 20 years’ experience in helping people secure their perfect mortgage. Advice is provided by L&C, who are authorised and regulated by the Financial Conduct Authority (143002).
L&C are not part of Compare the Market Limited. Compare the Market receives a % of the commission that our partner London & Country earns. All applications are subject to lending and eligibility criteria.
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