Introduction
Navigating the complex world of mortgages can be an intricate undertaking, with various types to select and their own individual features and benefits. One such type is Standard Variable Rate (SVR) mortgages; this guide aims to give a deeper understanding of these mortgage options in order for you to make informed decisions when selecting one for yourself.
What is a Standard Variable Rate Mortgage?
A standard variable rate mortgage is a type of home loan where the interest rate is determined and set by your mortgage lender and may change over time. While not directly tied to changes in the Bank of England base rate, your provider could alter it in response to various factors including changes in the cost of borrowing, regulatory requirements, or internal business goals.
Key Features of SVR Mortgages
- Not directly linked to the Bank of England’s base rate
- Interest rates can change over time
- Also known as a reversion-rate mortgage
- A lender’s SVR acts as their default interest rate.
How Does a Standard Variable Rate Mortgage Work?
An SVR mortgage allows for flexible monthly payments as part of your repayment is applied towards interest charges by your lender and part towards repaying what’s known as capital (your borrowed amount).
If your lender raises its SVR, your monthly payments will increase. However, any extra payments would go toward higher interest rather than towards repaying capital faster; therefore, if you are on your lender’s Standard Variable Rate mortgage option (SVR), be aware of the possibility that your monthly mortgage payments may rise if rates change.
Pros and Cons of SVR Mortgages
Like any financial product, a standard variable rate mortgage come with their own set of advantages and disadvantages. Understanding these facts can help you make an informed decision if an SVR mortgage is the appropriate choice for you.
Pros
- Flexibility: One of the key benefits of a standard variable rate mortgage is their flexibility. Most often, there’s no Early Repayment Charge attached, making it possible to pay off faster or switch deals without penalty; something which may prove particularly advantageous if remortgaging or moving home is in your near future plans.
- Potentially Lower Rates: If your lender has a low standard variable rate mortgage, your monthly repayments will also be comparatively low. But this can change quickly as lenders can adjust the SVR at any time.
Cons
- SVRs Are Higher: As standard variable mortgage rates tend to be much higher than other forms, you could end up spending far more over time than necessary on interest.
- Rate Fluctuations: Your lender can choose to change its SVR at any time. This can mean your monthly repayments could suddenly increase without warning, adding a level of uncertainty to your financial planning.
SVRs and The Risk of Losing Your Home
Variable rate mortgages carry the risk that your monthly payments could increase, potentially forcing you to be unable to meet them and losing your home as the lender takes legal action against you. Thankfully, an SVR mortgage allows for moving to a cheaper mortgage deal if this becomes necessary; so should difficulties arise, switching could help.
Standard Variable Rate vs Fixed-Rate Mortgages
One of the key decisions when it comes to choosing a mortgage is choosing between variable rate or fixed-rate loans.
Standard variable rate mortgages provide you with great flexibility, allowing you to remortgage or switch lenders without incurring fees. However, the monthly interest payments may change so it is essential that you can afford it even if the rate goes up in future.
A fixed-rate mortgage provides the security of an interest rate guarantee over an agreed timeframe – typically two to five years – making repayments more predictable and making budgeting simpler.
Have you heard of interest only mortgages? This type of mortgage allows you to have lower monthly payments by only paying off the interest of your mortgage.
Comparison
- A standard variable rate mortgage offers flexibility, but the amount you pay in interest each month can change.
- Fixed-rate mortgages offer the security of a set mortgage interest rate for an agreed period, often two or five years.
Other Types of Variable Rate Mortgages
Though Standard Variable Rate (SVR) mortgages are common, they’re not the only variable rate mortgage option available. Here are a few other varieties you may come across:
Tracker Mortgages
A Tracker rate mortgage is a type of variable rate mortgage where the interest rate ‘tracks’ a nominated interest rate, which is usually the Bank of England base rate. The rate you pay on a tracker mortgage is a set interest rate above or below this base rate. When the base rate changes, your mortgage rate will change by the same amount. A tracker mortgage deal tends to be very popular when interest rates are starting to decrease.
Discount Mortgages
Discount mortgages are another type of variable-rate mortgage. With these, the lender has an SVR, much like they would with an SVR mortgage, but they offer a discount on that rate for a certain period of time. This means that your mortgage rate is still variable and can change over time, but it’s guaranteed to be a set amount below the lender’s SVR for the duration of the discount period.
Capped Rate Mortgages
Capped rate mortgages are a type of variable rate loan wherein the interest rate fluctuates in line with your lender’s SVR but will never go beyond a certain limit or cap, known as the ceiling or cap. This may provide some assurance that mortgage repayments won’t exceed an agreed level while still offering potential lower payments if their SVR decreases.
Offset Mortgages
Offset mortgages differ from other variable rate loans in that you can connect your savings or current account to it, and use its balance as an offset against your mortgage balance; interest is only charged on any differences compared with what would normally be due. This approach can significantly decrease interest costs while still giving access to savings accounts and their funds.
Each type of variable rate mortgage comes with its own set of advantages and disadvantages; choosing the most suitable mortgage product depends on your unique financial circumstances and goals. Speak to an advisor or broker in order to fully comprehend all available options and make an informed decision that’s tailored specifically to you.
Learn more: The Different Types of Mortgage Explained
The Current Standard Variable Rate
The current Bank of England base rate is currently 4.5% (as of May 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. Below are the top 5 UK mortgage lenders SVR’s:
| Lender | Standard Variable Rate (SVR) |
|---|---|
| Barclays | 7.74% |
| Nationwide | 7.74% |
| NatWest | 7.49% |
| Santander | 7.25% |
| HSBC | 6.99% |
| Halifax | 7.99% |
Please be aware that these rates reflect conditions as of 23rd May 2023 and could have changed since then. Always contact the lender or a broker for up-to-date rates.
FAQs: Common Questions about SVR Mortgages
What is a standard rate variable?
A standard rate variable is a type of interest rate that can change over time, usually determined by the lender. It's often the rate you move onto after an initial fixed, tracker or discount mortgage deal ends.
What is the current mortgage standard variable rate?
The current mortgage standard variable rate (SVR) varies between lenders. As of May 2023, for example, Barclays and Nationwide have an SVR of 7.74%, while HSBC's is 6.99%.
What is UK standard variable rate mortgage?
A standard variable rate mortgage in the UK is a type of loan in which the interest rate can change over time, typically set by the lender. While its interest rate may not directly track with that of the Bank of England base rate, its effect can still have an influence.
Is it better to get a variable rate mortgage?
Whether a variable rate mortgage is better depends on your circumstances. It can offer flexibility and potentially lower rates but also comes with the risk of rates increasing.
How Using a Mortgage Broker Can Help you get a Low-Interest Rate
If you need further advice, contact a mortgage broker. They can offer guidance on what are currently the best mortgage deals on offer from both a fixed-rate mortgage and variable loans, so if your current mortgage deal is set to end or your payments have become burdensome it might be beneficial to explore what remortgaging options might be available to you.
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.
Conclusion
SVR mortgages offer flexibility but they also carry the risk of higher rates and rate fluctuations. It’s crucial to consider these factors and your personal financial situation when choosing an SVR mortgage. If you’re unsure about SVRs or how to get a mortgage, a broker can provide advice and may help you find lower interest rates by switching mortgage deals. Always seek professional advice if any aspect of your mortgage is unclear. Understanding the details of SVR mortgages is key to making informed decisions. While they provide flexibility, they also come with potential risks that need careful evaluation. Make sure to understand these intricacies before making your choice among the various mortgage options available.
