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 (SVR) mortgage.
We look at the pros and cons of SVR mortgages, how they affect your mortgage repayments and how you could save by switching to a new mortgage deal.
What is a standard variable rate mortgage?
Your mortgage’s standard variable rate (SVR) is the default interest rate you’ll be charged once the introductory deal on a discount, tracker or fixed mortgage ends.
Lenders set their own SVRs and the interest you pay can go up or down each month. That means, as the name suggests, the monthly repayments of standard variable rate mortgages are hard to predict.
The interest rates on SVR mortgages also 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 increase significantly.
How does a standard variable rate mortgage work?
With a SVR mortgage, the interest you’ll pay each month on your mortgage repayments will vary according to your lender’s standard variable rate. If your lender’s mortgage SVR goes up, that means your monthly repayment will go up too.
Unlike tracker mortgages, standard variable rate mortgages don’t track the Bank of England base rate at a set percentage. Your lender decides the rate you pay.
So, for example, if the Bank of England base rate goes up by 1%, your lender could choose to:
- Increase its SVR by 1%
- Increase its SVR by more than 1%
- Increase its SVR by less than 1%
- Make no changes to the SVR (unlikely)
- 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 set length of time.
That’s good news if you find yourself moved onto your lender’s SVR and start to see your monthly repayments go up. In most cases, you’re free to move to a better deal whenever you choose without having to pay an early repayment charge.
What are the pros and cons of a standard variable rate mortgage?
- Typically 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.
- 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 a 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?
Sticking to a standard variable mortgage rate is typically not the cheapest way to pay off your home loan. And because the interest rate can change at any time, it can make budgeting for your monthly repayments more difficult.
However, SVR mortgages do offer more flexibility than fixed-term deals. For that reason, there may be occasions when an SVR mortgage could be useful.
You can normally leave a SVR mortgage at any time without paying a penalty, so it could be a decent short-term fix if you haven’t found the right mortgage deal yet. For example, if you’re moving home and you’ve not yet found a decent portable mortgage. Or if you’re planning on refinancing and need a bit of time to weigh up your options.
On a SVR mortgage, you’ll typically avoid any fees for overpaying on your mortgage. That means it could make sense if you have a lump sum or inheritance you want to use to pay off your home sooner.
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 Mortgages
About 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).
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The content written in this article is for information purposes only and should not be taken as financial advice. If you require support on the products discussed here, please speak to your bank/lender or seek the advice of an independent professional financial advisor. We also have more information on our Customer Support Hub.