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Standard Variable Rate (SVR) Mortgages

The great thing about mortgages is that every lender offers different rates and allowances to suit their customer’s needs. This gives the customer greater choice and flexibility and so your lender’s ‘default’ rate of interest charged will reflect the wider mortgage market at any time. This interest rate is known as Standard Variable Rate (SVR).

Read on to find out more about SVR mortgages.

What is a Standard Variable Rate Mortgage?

An SVR mortgage charges an interest rate that can vary. It is used when customers have reached the end of their fixed rate, capped or discounted period and have yet to sign a new mortgage deal or switch providers.

It is not to be confused with tracker mortgages (which closely follow the Bank of England base rate), as the percentage of interest charged can be significantly higher, in some cases. The lender decides their current mortgage rates based on their position in the wider market. However, standard variable rate mortgage rates are often ‘influenced’ by base rate fluctuations.

Find out more about tracker mortgages and others in our Mortgage Types Guide.

Typically, the SVR rate can be from 3-6% interest (average figures at the time of writing) but can change at any time.

What are the Benefits of SVR Mortgages?

• Times of Low Interest Rates – In times when the Bank of England base rates are at a low point, lenders will often align their SVR mortgage rate with this figure. This means that those who haven’t signed up for a new deal can enjoy the benefit of paying less in interest for their mortgage.
• Makes Comparison Easy – When searching for a mortgage product, potential customers can assess which mortgage provider is right for them, by checking the lender’s default SVR rate, as well as the specific products they’re investigating. With so much choice in the mortgage market, having another measure to compare can make choosing the right product easier.
• No Exit Fees – If you wish to remortgage (see our Guide to Remortgaging for more) you can exit an SVR mortgage rate with relative ease, incurring no early repayment penalties, in the majority of cases.

Let’s Look at an Example of an SVR Remortgage

Glen and Barbara are comparing mortgages, as they would like to remortgage their property.

Glen is searching the mortgage comparison sites and finds a good two-year fixed rate mortgage charging 2.69% interest. Barbara is also investigating the mortgages on offer and finds a cheaper two-year deal for 2.5% interest. At first glance, Barb had found the better deal. However, Glen noted that the lender of the cheaper fixed rate deal charges 5.88% interest SVR, whereas the lender he found charges 3.69% SVR.

As they are looking for a deal that covers only a short time, the couple opt for the slightly more expensive 2.69% fixed rate deal. This is because they know that when their fixed period ends, they need to be transferred to an SVR rate that will won’t dramatically shake up their monthly mortgage budget.

What are the Pitfalls of SVR Mortgages?

• Rate Changes – An individual lender’s SVR rate can change at any time, so for those who like certainty, moving away from your lender’s ‘default’ interest rate is the only way to protect yourself from unexpected changes to interest payments.
• More Expensive than Tracker Mortgages – As the SVR rate only takes partial influence from the Bank of England, quite often SVR mortgage rates will be significantly higher than tracker mortgage rates.
• Requires Careful Planning – For some mortgage holders, the switch to a lender’s SVR can stretch their budgets to an uncomfortable level. This means that they will have to be extra vigilant towards the end of their current plan, to ensure a seamless switch to a new, more affordable, deal. The process of applying for a new mortgage can be lengthy (take a look at our Guide to Applying for a Mortgage, for more on this), so for short term mortgage fixers, avoiding the SVR rate requires careful planning.

What are the Alternatives to SVR Mortgages?

• Tracker Mortgages – This variable rate mortgage moves closely in line with the Bank of England base rate of interest. At times when the base rate is very low, these mortgage holders will enjoy paying less in interest for their mortgage.
• Capped Mortgages – If you would like to benefit from paying less in interest at times, but have an upper limit on mortgage affordability, then a deal with a ‘cap’ (upper limit) may be for you.
• Discounted Mortgages – Borrowers looking for low introductory rates on interest may be attracted to one of the many discounted mortgages on the market.
• Fixed-Rate Mortgages – These mortgages always charge the same amount of interest for an agreed fixed period. This mortgage type offers security to mortgage borrowers, allowing them to carefully plan their monthly budgets.

If you would like some free advice on choosing the right mortgage deal for you, get in touch with an independent mortgage broker. They can offer you a free, no-obligation quote.