Standard variable rate (SVR) mortgages are the ‘vanilla’ mortgage that every lender offers. It’s an option that doesn’t excel in any particular area but can be useful in certain situations.
If you have ready my guides on fixed rate mortgages and tracker mortgages, your focus may naturally turn to standard variable rate mortgages.
Let me share what I know.
What is a standard variable rate mortgage?
A standard variable rate mortgage uses an interest rate set by the lender that can increase or decrease as the Bank of England (BoE) base rate changes.
It’s typically the mortgage your lender will switch you to when a fixed rate or tracker comes to an end.
It’s important to know that the lender doesn’t have to change your rate as the BoE rate changes. It’s only an indication.
It’s also important to know that SVR mortgages are rarely the cheapest option.
Lenders decide in their own time if and when they adjust the interest rate of a standard variable rate.
It will typically be written into the contract how many percentage points above the BoE rate your mortgage will be and when any changes would be implemented.
If you want to follow the base rate, you should look at tracker rates.
How do SVR mortgages work?
As I mentioned above, standard variable rate mortgages follow the Bank of England (BoE) base rate.
However, it isn’t a tracker mortgage so it won’t follow it exactly.
The mortgage will be anything up to 5% above the current BoE rate and isn’t the cheapest option for most people.
Also as I mentioned above, if the BoE rate changes, your mortgage rate may not change, or may not for a while.
Much depends on the conditions outlined within the mortgage.
You’ll typically find that lenders will include any rate rises very quickly but will discount the rate when the BoE rate drops much more slowly.
The pros and cons of SVR mortgages
As with any financial product, this type of mortgage has pros and cons.
Pros of SVR mortgages:
Your interest can drop when base rate drops – If inflation is low, interest rates tend to drop. Your mortgage rate should do the same.
No fixed period – Most SVR mortgages don’t have fixed periods so you can change it whenever you like.
Cons of SVR mortgages:
Not the cheapest mortgage out there – SVR mortgages are rarely the cheapest option and can be several percentage points higher than the BoE rate.
If interest rates rise, so will your mortgage interest – As recent history has shown, interest rates can climb exponentially, which means your mortgage payment will climb too.
Lenders tend to be slow to pass on rate drops – When the BoE rate drops, some lenders can be quite slow in passing on those savings.
Lenders tend to be quick to pass on rate rises – Conversely, when the BoE rate increases, you can be the lender will move a little faster to adjust your rate!
Standard variable rate mortgages – Yes, or no?
Standard variable rate mortgages are very common and may work for some people who cannot get anything else. Otherwise, there are usually better deals out there.
Consider discount variable rate, fixed rate, tracker or something else. Compare the market, see what you qualify for and check the rates.
Rarely will standard variable rate mortgages be your cheapest option.
