Standard Variable Rate Mortgages

Standard Variable Rate Mortgages: How They Work and Why You Might Want to Switch

A Standard Variable Rate (SVR) mortgage is the interest rate your lender charges after your fixed or introductory deal ends. Typically, SVRs are higher than other mortgage rates, and they fluctuate based on your lender’s decisions and market conditions. Many borrowers find themselves on an SVR by default when their initial deal expires, but this rate is often not the best option. In this guide, we’ll explore how SVR mortgages work, their advantages and disadvantages, and why you might want to consider switching to a better deal.

What is a Standard Variable Rate (SVR) Mortgage?

An SVR mortgage is a type of variable interest rate that lenders charge after your fixed or tracker deal ends. Unlike a tracker mortgage, which follows the Bank of England’s base rate, an SVR is set by the lender and can change at any time. While the SVR may rise or fall in line with the base rate, it isn’t guaranteed to track it directly.

SVR mortgages typically come with higher interest rates than other mortgage products, which means you could end up paying more than necessary if you stay on an SVR for too long. The lender can raise or lower the SVR at their discretion, and this unpredictability makes it hard to budget for future payments.

How Does an SVR Mortgage Work?

When your mortgage deal ends (e.g., a fixed-rate or tracker mortgage), your lender will usually switch you to their SVR if you do nothing. Here’s how SVRs typically work:

• Variable Interest Rate: The interest rate can change at any time, depending on market conditions or the lender’s decisions.

• Higher Rates: SVRs are often higher than other mortgage rates, meaning you could be paying more than necessary.

• No Fixed Term: Unlike fixed-rate mortgages, SVRs don’t lock you into a set term, giving you more flexibility if you want to remortgage or pay off your mortgage early without penalties.

Should You Stay on Your Lender’s SVR?

In most cases, staying on an SVR is not ideal because the interest rate is typically much higher than other options. However, there are a few scenarios where remaining on an SVR might make sense:

• No Early Repayment Charges: If you plan to sell your property or pay off your mortgage soon, staying on an SVR can give you flexibility without incurring early repayment charges.

• Overpayments: SVRs often allow unlimited overpayments, making them a good option if you want to pay down your mortgage faster without penalties.

• No Setup Fees: SVRs generally don’t come with arrangement or setup fees, which might make them appealing if you’re not ready to commit to a long-term deal.

Despite these potential benefits, most borrowers can save money by switching to a more competitive rate, especially if they aren’t planning to move or pay off their mortgage in the near future.

Could You Save Money by Switching to a Fixed-Rate Mortgage?

Switching from an SVR to a fixed-rate mortgage can often result in significant savings. Fixed-rate mortgages lock in your interest rate for a set period, protecting you from fluctuations in the lender’s SVR or the Bank of England base rate. Here’s how to determine whether switching to a fixed rate might save you money:

1. Loan Amount: Start by calculating the remaining balance on your mortgage.

2. Interest Rate: Compare your current SVR to the interest rate offered on a fixed-rate mortgage.

3. Mortgage Term: Consider the number of years remaining on your mortgage.

A mortgage difference calculator can help you estimate how much you could save by switching to a fixed rate. Simply enter your outstanding loan amount, the current SVR, and the fixed rate you’re considering to see how your payments would change.

How a Broker Can Help You Find the Best Rate

A mortgage broker can be an invaluable resource when considering switching from an SVR to a better deal. Here’s how a broker can assist:

• Tailored Advice: A broker can review your financial situation and recommend the best mortgage products for your needs, whether that’s a fixed, tracker, or SVR mortgage.

• Access to Deals: Brokers often have access to exclusive mortgage rates that aren’t available to the public, ensuring you get the most competitive deal.

• Complex Situations: If you have bad credit, a non-standard property, or income based on bonuses or commission, a broker can connect you with lenders who specialize in these circumstances.

Even if you prefer the flexibility of an SVR, a broker can help you find a lower rate with another lender, potentially saving you thousands over the life of your mortgage.

Current Standard Variable Rates for Mortgage Lenders

Standard Variable Rates vary by lender and are not directly tied to the Bank of England’s base rate. For example, HSBC currently has an SVR of around 6.99%, while Natwest’s SVR is 7.99%, and Barclays offers an SVR of 8.49%. Nationwide and Santander have rates slightly lower, at 7.74% and 7.25% respectively. Halifax also sits at the higher end with an SVR of 8.49%. Given this variation, checking your lender’s current SVR is essential, and it could be an indication that switching to another mortgage could save you significant money.

What if You Can’t Switch to a Better Rate?

Some borrowers find themselves in a situation where they’re unable to switch from an SVR to a better deal, often referred to as being a “mortgage prisoner.” This can happen if your financial circumstances have changed, or if your property or credit profile no longer meets the criteria of other mortgage products.

Fortunately, more lenders are becoming aware of this issue, and there are initiatives aimed at helping “mortgage prisoners” find better deals. If you’re stuck on an SVR and unable to remortgage, a specialist broker can help you find a lender that might offer you more favorable terms.

Conclusion

Standard Variable Rate (SVR) mortgages are often the default rate borrowers are switched to after their introductory deal ends. While they offer flexibility, they typically come with higher rates and less predictability. Most borrowers can save money by switching to a fixed or tracker mortgage once their initial deal ends. For personalized advice on your mortgage options, contact Mortgage One today to explore how you can reduce your monthly payments and secure a more favorable rate.

FAQs

What’s the difference between an SVR and a variable rate mortgage?
An SVR is one type of variable rate mortgage, but it’s set by the lender rather than directly following the Bank of England’s base rate. Other variable rate mortgages, like tracker mortgages, follow external indicators such as the base rate.

Am I paying too much on my SVR mortgage?
If you’re on an SVR, you’re likely paying more than you would on a fixed or tracker mortgage. Contact a mortgage broker to explore other options and potentially reduce your monthly payments.

Can I switch from an SVR to a fixed-rate mortgage?
Yes, in most cases, you can switch to a fixed-rate mortgage if you meet the lender’s criteria. A mortgage broker can help you find the best fixed-rate deal based on your financial situation.

Why do lenders offer SVR mortgages?
Lenders often set their SVR higher than other rates because they expect some borrowers to remain on it after their initial deal ends. It’s a way for lenders to increase their returns from existing customers.

Should I stay on an SVR mortgage?
In most cases, it’s better to switch to a fixed or tracker mortgage to save money. However, staying on an SVR can make sense if you need flexibility, plan to move soon, or want to make large overpayments without penalties.