All you need to know about SVR mortgages and how they work.
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Whether you currently have a mortgage in place or are planning on taking one out in the future, a standard variable rate (or SVR) is an important concept that can have a huge effect on the amount you pay to the lender, and having a good understanding of how it works could potentially save you thousands.
We often hear from customers who have questions about standard variable mortgage rates, so we’ve put together this handy guide to how it works and what it means for you.
For the best advice on standard variable rate mortgages, call us on 0808 189 2301 or make an enquiry here. We’ll then pair you with an expert advisor who can help to answer any questions or concerns you may have. They also have whole-of-market access, meaning that they can find the best SVR mortgages for your circumstances.
Standard variable rate simply refers to the interest rate on a mortgage that is not currently locked into a ‘fixed’ rate or tracker, usually because the initial deal has elapsed. Each lender sets its own SVR that will kick in once a customer’s initial fixed rate or discounted deal has come to an end, and as the name suggests, these rates can fluctuate.
In the UK, SVR mortgage rates move broadly in-line with the Bank of England base rate, but the actual rate you’ll get is ultimately at the lender’s discretion, and some lenders will have higher SVRs than others.
Some lenders (for example, those who want to prioritise new business) may offer great introductory rates that revert to less compelling and much more expensive SVRs. So even on a fixed-rate mortgage, it’s important to know where you stand so you can plan your exit if you want a cheaper deal at the end of the term.
If you have any questions relating to standard variable mortgage rates—whether you’re trying to get out of one or you’re looking to take out a mortgage on an SVR—the specialist advisors we work with can help you find the right mortgage for you.
With access to the whole market and plenty of experience in successfully arranging mortgages for customers in all kinds of circumstances, they are ideally placed to get you a better deal. Call us on 0808 189 2301 or make an enquiry and we’ll be in touch soon.
In many cases, staying on your lender’s SVR is the more expensive option. See the example below for a typical scenario:
Let’s say you were to take out a £100,000 mortgage with a 2-year fixed interest rate of 1.39%. For the first 2 years of this mortgage, you’d pay the same rate of 1.39% on each payment, amounting to £395 per month. But after the 2 years has expired, your lender’s rate reverts to 4.5%, meaning that if you stayed on the SVR you’d need to pay £556 a month, costing you an extra £1,932 a year.
However, in some cases the SVR can look like a good option. This will depend on market conditions both current and at the time of taking out the mortgage, as well as your lenders’ SVR in comparison with its competitors and your personal circumstances. Rates have been low for many years, so some simply stay on an SVR mortgage as they think that switching would be a hassle.
For example, if you took out a fixed-rate mortgage when interest rates were higher than they are now, your repayments would fall once the loan reverts to its SVR. And if you did see a better rate elsewhere, you wouldn’t be charged by your lender if you chose to switch providers: most fixed-rate mortgages have charges in place to stop people switching too often.
In this case it would still usually make financial sense to fix or switch to a tracker while rates are low, as you cannot guarantee that your lender’s SVR will stay low. However this may not always be an option if you are planning to sell or move in the near future.
If you’re undecided about whether to stay on your lenders SVR, make an enquiry and we’ll be happy to put you in touch with an expert for impartial advice.
Trackers are another type of variable rate mortgage, but there are some key differences between the two product types. The interest rate on a tracker mortgage is tied to the Bank of England base rate and must rise and fall in step with it, so lenders cannot adjust the rate in line with their own policies as they can do with their SVR.
Tracker mortgages are usually set up for a fixed period and can be a great way to save money on your repayments if you’re prepared to take the risk of a rate rise. Some people choose to overpay on a tracker while rates are low, knowing that they can put those extra funds into their regular payments if they suddenly increase.
On a discounted SVR mortgage, your interest rate is calculated as the lender’s SVR but with an agreed ‘discount’ taken off, for a fixed period (usually 3 or 5 years).
So, if the lender’s SVR is 4.5% and you take a deal offering a 1% discount for 2 years, during that 2 year period you’ll pay 3.5% unless the lender’s SVR changes during this time. If it were to rise to 5% for example, your rate would rise to 4%, and so on.
At the end of the agreed term, you would pay the non-discounted SVR, unless you switch to a new deal.
Yes, it is possible to take out a new mortgage and go straight on to a standard variable rate with no initial fixed term, but this is fairly unusual: SVRs can be unpredictable, because while they are influenced by the Bank of England base rate, they are ultimately set at the discretion of the lender. So most borrowers prefer to lock in to a rate they are comfortable with.
However, by taking out a mortgage on the standard variable rate initially you do have more flexibility: there’s usually no restriction on moving on to another product or provider, so this could be an option if you think you may want to refinance significantly in less than two years, which is the usual minimum fixed term.
Not all lenders offer this, so we suggest you speak to an expert if you’re thinking of arranging a new mortgage on an SVR.
Customers often ask us, “What is the average standard variable mortgage rate?”. The ‘typical’ SVR is always an estimate because by definition variable rates can change, and they also differ from one lender to the next. But on average, standard variable mortgage rates in the UK are somewhere around 4.9% (at the time of writing).
This compares unfavourably with the cheapest rates available on the market, some of which are as low as 1.29%. But, on average, fixed rates are around 2.52%.
Don’t forget that many other factors influence fixed rates, including the number of years you’re fixing it for, the health of your credit history, deposit size, property type, property value and more.
If you are currently on a fixed rate with your provider and don’t know what it will revert to once the initial period is over, getting hold of this information should be easy.
If you still have the paperwork from when you arranged the mortgage, the lender’s current SVR should be clearly visible on it, as well as on your annual statements. But in the absence of these documents, your lender will be able to provide you with this information.
Customers often ask us about the possibility of getting ‘stuck’ on a lender’s SVR with no hope of remortgaging to fix at a lower rate. Fortunately, this scenario is relatively unlikely because tightening of regulations in recent years has meant that mortgage companies are more cautious, and take extra steps to ensure customers can repay their loans.
In practice, this means that if you’ve passed initial checks and been granted a mortgage in recent years, you should still be accepted for a new one, either with a different provider or your current lender, on a fixed rate or tracker.
But what if your situation has changed radically or if you took out a mortgage before these regulations came into play? In the unlikely event that your current provider will not consider offering you a fixed-rate loan, you may be what has become known as a ‘mortgage prisoner’.
Some homeowners, especially those who took out mortgages more than a decade ago, are now struggling to refinance and fix at a better rate than their lender’s SVR because they simply don’t meet the stricter eligibility criteria set by today’s lenders, even though they are already successfully repaying a mortgage. So what can you do if you find yourself in this unenviable position?
Fortunately, every lender has different eligibility criteria and there are lenders out there who will consider applications from new customers who may have been overlooked by other providers due to issues such as adverse credit, employment status or age.
Our advisors can help you to identify sympathetic lenders that are more likely to accept you as a customer, freeing you from a potentially crippling SVR. Make an enquiry to get started.
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*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.
Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
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