What is a standard variable rate mortgage?
A standard variable rate (SVR) is a type of mortgage that you will most likely move onto after coming to the end of an initial benefit rate. An example of this would be, on first taking out a mortgage you may have opted for a 2-year fixed mortgage, at the end of this deal you will likely move on to the lenders standard variable rate.
Some lenders may offer the option to take out a mortgage on their standard variable rate, but this is usually always the most expensive option.
Standard variable rates tend to be higher than the rates on other types of mortgage. For example, January 2019, the average SVR was 4.9% according to Moneyfacts, while the average two-year fixed-rate deal cost just 2.52%.
This would mean an increase of £129 per month to your monthly repayments if you had borrowed £100,000 over a 25-year term.
How does a standard variable rate work?
Standard variable rate mortgages are likely to fluctuate with interest rates, this could mean your monthly payments could change unexpectedly & frequently.
Not to get confused with tracker mortgages, standard variable rate mortgages do not track the Bank of England Base Rate. Instead, the interest rate you pay on will be determined by your mortgage lender.
Lenders do normally base their decision on how the interest rate will be increased or decreased by the Bank of England, but ultimately it is their decision and nothing is stopping them increasing this at any point.
What are the benefits of a standard variable rate mortgage?
- If interest rates do reduce, then your monthly repayments could go down.
- Arrangement fees tend to be lower than other types of mortgages. There may be no arrangement fee charged at all.
- Standard variable rate mortgages tend to have little or no early repayment charges, giving you the flexibility to overpay, pay off the mortgage early, or remortgage to a new deal.
What are the disadvantages of a standard variable rate mortgage?
- If interest rates increase, so will your monthly repayments.
- Standard variable rates are often the most expensive type of mortgage available.
- Your existing mortgage will default to a standard variable rate after any initial benefit rate ends and if you don’t product switch or remortgage, your monthly repayments are likely to rise significantly.
Could now be the right time to remortgage?
If you are looking to discuss variable rate mortgages or are looking to remortgage your existing variable rate mortgage, finding the right deal for you is right at your fingertips.
Contact one of our tracker mortgage experts at Blossomfield Mortgages, and we will be more than happy to compare thousands of mortgage products to find you the right deal! You can contact us on 0345 066 6555 or simply drop us a chat message.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
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Frequently asked questions...
What is a Credit Score?
What is a Credit Score?
Your credit score acts as a way of showing how good you are at managing your personal finances and credit repayments. Lenders will calculate their own score and use it to decide whether they should or shouldn't lend you money based on their lending criteria.
How long can I borrow my mortgage for?
How long can I borrow my mortgage for?
On average, mortgages last around 25 years, but some lenders will allow a term of up to 40 years, depending on your circumstances.
When discussing the length of the mortgage with our experienced mortgage brokers, they will guide you to the most suitable term.
A good practice is to keep the length of the mortgage to a minimum whilst still allowing you to have disposable money for a high standard of life, as this will result in less interest being paid over the full term of the mortgage.
Will I be charged for paying off my mortgage early?
Will I be charged for paying off my mortgage early?
That will depend on what kind of product you chose when you took out your existing mortgage.
Most mortgage lenders charge an early repayment fee if you decide to pay a lump sum or clear the whole balance of your mortgage. These fees are typically due when you have entered into a fixed-period mortgage.
Repayment mortgages will usually allow you to make overpayments each month. Overpayments are normally allowed up to 10% above your standard monthly payment. However, this will depend on each particular mortgage plan and its terms.
