Should You Ever Stay On Your Lender’s SVR?

With the unpredictable economy and the Bank of England base rate at 4.75%, it is understandable that many people are uncertain about committing to a new mortgage deal.

If you’re nearing the end of your current mortgage term and are unsure about locking into a new rate, you might be considering letting your mortgage default to your lender’s standard variable rate (SVR). But is staying on your SVR a good idea?

Let’s explore the pros and cons to help you decide whether this option is viable.

How are standard variable rates set?

A lender’s SVR is different from its tracker mortgage rate. While a tracker mortgage is directly linked to the Bank of England base rate, the SVR is set entirely at the lender’s discretion. Although it often follows the base rate, the lender can increase or decrease it at any time, regardless of changes in the base rate.

This added uncertainty is one of the main disadvantages of staying on the SVR.

You’ll pay more every month

The biggest drawback of staying on your lender’s SVR is that it will likely cost you more. Lenders often profit from SVRs—they attract customers with low initial deals and rely on some borrowers, allowing their mortgage to default to the higher SVR once the initial term ends.

Even if the SVR is only a percentage point higher than your previous rate, you could pay significantly more throughout your loan.

Should you stay on your lender’s SVR if you think rates will decrease?

If you believe interest rates may decrease soon, you might hesitate to commit to a fixed-rate deal out of fear of overpaying. In this situation, you may consider staying on the lender’s SVR to hedge your bets while waiting to see how the market evolves.

While the flexibility of the SVR can be appealing, this strategy comes with risks. If rates rise instead, you will pay significantly more on the SVR than a fixed-rate mortgage. Conversely, switching to a tracker mortgage could have provided similar flexibility at a lower cost if rates fall.

If you’re considering staying on your SVR due to uncertainty, speaking to a mortgage broker might be wise. They can advise on whether staying on your lender’s SVR is a good idea or not based on your circumstances. They can also advise you on the different options available to you besides an SVR and fixed-rate deal, such as discount mortgages and capped rate mortgages.

You could pay off your mortgage sooner

One scenario where staying on a lender’s SVR could make sense is if you plan to pay off your mortgage early. This might be because you’re in the process of selling your home, expecting an inheritance or bonus, or have a high income and intend to make large overpayments beyond the limits typically allowed by fixed-rate or tracker mortgages.

In this case, an SVR mortgage can be advantageous because it usually does not have early repayment charges. You are not tied to a fixed term and can make overpayments or pay off the mortgage in full at any time without financial penalties.

Another benefit of an SVR is that they often have low or no setup fees. However, many mortgages now offer arrangement fee waivers or allow you to incorporate the fees into the loan, so this alone may not justify staying on an SVR.

If you’re uncertain about your options as you approach the end of a fixed term, consult a mortgage broker. They can provide you with a clear understanding of your choices and help you secure the best deal for your circumstances.