Do you want to know what a standard variable rate mortgage is? It’s a term you may have come across before, but if you need more details, keep reading for an explanation of this type of mortgage.
What is a Standard Variable Rate Mortgage?
When looking for a mortgage deal, you have the choice between a fixed-rate mortgage or a variable-rate mortgage. With a fixed-rate mortgage, the interest rate will stay the same for the duration of your deal. Variable-rate mortgages, on the other hand, have a variable rate of interest and therefore monthly mortgage payments which can go up and down during your mortgage term.
There are three types of variable-rate mortgages: tracker mortgages, discount rate mortgages, and standard variable rate mortgages.
A standard variable rate mortgage also known as SVR is the variable rate mortgage you will be moved onto when your tracker, discount or fixed rate mortgage ends.
If your current deal is about to come to an end, now could be the best time to make the switch. By doing so, you may make significant savings as SVR mortgages typically will have higher interest rates than other mortgage types.
Thankfully, standard variable rate mortgage rates don’t have a lock-in period. So, if you are unhappy with the interest rate that your lender is charging, you are free to move to a more competitive deal whenever you are ready to do so. There will be no early repayment charge although if you move to a new lender, you will have to pay the arrangement fee and the other mortgage fees that they set.
If you’re on a standard variable rate; with interests rates increasing rapidly in 2022 we would strongly advise that you consider fixing your interest rate.
What is the Standard Variable Rate?
Mortgage lenders set their own standard variable rate (SVR) and this is the interest rate you will fall onto if you don’t remortgage to a new variable or fixed mortgage.
Unlike a tracker rate mortgage, which can rise and fall depending on changes to the Bank of England base rate, SVR mortgages can alter at any time. So, while there are occasions when your mortgage provider might choose to adjust the standard variable rate in line with the Bank of England’s base rate, they might also decide not to. As such, your monthly repayments could remain the same or they could increase at short notice.
Will you pay your mortgage off sooner with a standard variable rate mortgage?
As the interest rate on standard variable rate mortgages is typically higher than that on discount and tracker rate mortgages, your monthly payments will also be higher.
Unfortunately, this doesn’t automatically mean you will pay off your mortgage sooner. The extra money you pay will go towards the interest rates and not the mortgage capital, so you won’t necessarily pay off your mortgage more quickly.
Should you stay on your lender’s standard variable rate mortgage?
Once your fixed-rate or variable-rate mortgage ends, you will be transferred onto your lender’s SVR mortgage. For some people, making the switch to a new mortgage deal can be a hassle so they decide to remain on their existing lender’s default interest rate. But is this a good idea?
In short, no! It rarely makes sense to remain on your lender’s SVR. Typically, you will end up paying more on your mortgage monthly repayments each month if you don’t shop around for a remortgage deal. As such, your finances will take a hit, and you will have less money for the other important things in your life, such as your household bills.
Therefore, it is wise to compare mortgages as your financial position will be improved if you switch to a deal with a more affordable mortgage interest rate. You have the choice of both fixed-rate mortgages and variable-rate mortgages or even a tracker mortgage, and whatever you choose, you should get a deal with cheaper interest than your existing lender’s SVR.
Of course, you don’t have to compare the mortgage market alone. If you choose to use a mortgage broker, they will look for the best mortgage deals with the lowest mortgage repayments on your behalf.
What is the Current Standard Variable Rate?
The current Bank of England base rate is currently 4% (as of February 2023) but as a mortgage lender’s SVR can vary, the interest rate they charge might be higher or lower than the base rate, depending on which bank or building society you turn to.
To give you a couple of examples, Barclay’s SVR is currently 6.49% at the time of writing, based on figures here and the Nationwide’s standard mortgage rate is currently also 6.99%, according to the information here.
Benefits of a Standard Variable Rate Mortgage
Can there be any benefits with a standard variable rate mortgage? Actually, yes, as you can see below. However, it is still worth weighing up the cons as well as the pros before you come to a decision about your mortgage.
Your monthly repayments could be lower
SVR mortgages are rarely competitive and as such, the interest rates are typically higher than on other types of mortgages. However, this isn’t always the case. If your lender’s SVR is low, your monthly repayments will be low too, although there is still the chance that the interest rate on your SVR mortgage could go up eventually.
There is no early repayment charge
On a fixed, variable, or tracker mortgage, you will have to pay an early repayment charge if you decide to pay off your mortgage early. This isn’t usually the case with SVR mortgages, however. You have the flexibility to switch to a new mortgage deal or pay off the entirety of your mortgage whenever you want, with no early repayment charges.
The arrangement fees will be lower
SVR mortgages tend to have lower arrangement fees than those that are attached to other types of mortgages. In some cases, lenders won’t charge you an arrangement fee at all. As such, you could save money if you decide not to switch to a fixed, variable, or tracker mortgage, unless, of course, the mortgage rate goes up at your lender’s discretion.
Are there any issues with a Standard Variable Rate Mortgage?
If you stay on your lender’s standard variable mortgage rates, you can experience the benefits discussed above. However, as we have suggested already, comparing mortgages is still advisable as you could save money if you switch to a new variable or fixed-rate deal. Therefore, it is important to consider the disadvantages of this type of mortgage.
Standard variable rates are usually higher
If you’re hoping to reduce the monthly repayments on your mortgage, it is usually better to switch to a new fixed, tracker, or discounted deal. These mortgage types are often quite competitive so it’s wise to take advantage of the best mortgage deal that you can find.
Of course, you might assume it’s cheaper to stay on the lender’s SVR if the interest rate is lower than that on the deals being advertised elsewhere. However, as the lender can choose to raise their rates at any time, it might still make sense to consider a new deal at some point during your mortgage lifetime.
You will be faced with financial uncertainty
If you’re on a mortgage with fixed rates, you have the peace of mind that the interest rate won’t change at any moment. As a consequence, you will be in a better position to budget your finances, and you will have the opportunity to make more savings each month.
You have less certainty if you have a home loan with variable mortgage rates, however, as your mortgage repayments could go up or down at any moment. This might not matter if you’re in a position to pay off your mortgage early but if you still have a long way to go, you will be faced with long-term financial uncertainty if you stay on your lender’s standard variable rate.
Therefore, it is advisable to switch to a new deal when you see an opportunity. As you are unlikely to be charged an early repayment charge if you’re currently on an SVR mortgage, you won’t have to worry about being penalised if you do decide to look for better mortgage offers.
You could lose your home
If you are unable to make the monthly payments on your mortgage, you could lose your home. This is the case no matter what type of mortgage you are on. But if you are on a fixed rate deal, you should be able to budget for your payments as you won’t have to worry about the interest fees on your outstanding balance increasing.
With a variable rate mortgage, there is the risk that your monthly payments could rise. If you are then unable to make your payments, you could lose your home if the lender decides to take legal action. Thankfully, you can move to a new mortgage deal without penalty if you’re on an SVR mortgage, so if you find yourself in difficulty, you can find something cheaper.
How Using a Mortgage Broker Can Help you get a Low-Interest Rate
If you need any more advice, get in touch with our team at YesCanDo Money. Whether you’re on a fixed or variable mortgage, we can advise you on the best mortgage deals that are currently available on the mortgage market.
If your current deal is about to end
If you are approaching the end of your current mortgage term, now could be the time to make the switch before you fall onto your existing lender’s standard variable rate. We can explore your options with you and point you in the direction of those mortgages that have a cheaper rate of interest.
It’s a good idea to investigate new deals around six months before your existing mortgage is about to end, so don’t procrastinate. It can take several weeks to get a new mortgage application sorted so the sooner you get in touch, the sooner we can get everything sorted for you.
If you are midway through your current mortgage deal
If you are currently struggling with your monthly payments, then it might be worth exploring your options to remortgage only. However, you do need to be aware that early repayment charges may be payable and therefore should check this out first. Early repayment charges do vary depending on the fixed rate or tracker rate you are on. If you are on a standard variable mortgage rate you may find that there is no early repayment charge.
You will be subject to the charges set by your lender if you do decide to leave your mortgage early. You will also have to pay the arrangement fee and other charges set by your new lender. However, if a new deal will leave you financially better off, then switching early could be a good idea.
If you are on your lender’s SVR
If you are currently on your lender’s standard variable rate, then you will know how financially better off or worse you are. If you are paying more than you should be on interest, then making the switch to a new mortgage product deal is advisable. It might also be worth considering other deals if your current rate of interest is relatively low because, as we have discussed already, your lender could raise their SVR at any time.
We can explore your options with you. As we are a ‘whole of market’ mortgage broker, we have access to thousands of deals on the mortgage market so we should be able to find you something with a lower interest rate than that on your current mortgage.
YesCanDo Money: Fee Free Mortgage Advice And Support
Some mortgage brokers charge their customers a fee for their services but we do not, these are called fee free mortgage brokers. If you want to avoid the SVR set by your lender, we can help you make the switch at no cost to yourself. Our expert team of mortgage advisers will search the mortgage market on your behalf, advise you on the best deals for you, and give you all the help you need throughout the mortgage application process. We do all of this for FREE so get in touch with our very experienced team today if you would like to know more.