Updated: 14/09/2024
Until recently, and with the development of different types of mortgage products, the Standard Variable Rate Mortgage was the most common type of mortgage available to a borrower. We have put together 10 Fundamentals of a Standard Variable Rate Mortgage to help you navigate your way through it.
The Interest rate of a Standard Variable Rate Mortgage varies alongside that of the general market available, such as that set by the lender (Bank, Building Society, etc).
The Interest Rate may not be directly linked to the Bank of England, but generally, and in the majority of cases, this will be the main influence in deciding when it will increase or decrease the rate and by how much.
Your Lender has the option to increase or decrease the mortgage rate that you pay on your property loan on a month-to-month basis, so you should be aware that you could pay more or less depending on their decision and budget accordingly.
That said, it does actually make it quite difficult for you to budget accurately, as your payments could obviously go up or down on a month-to-month basis.
A positive to think about though is that the Standard Variable Rate Mortgage (SVR) does allow for more of a freedom of choice, so to speak, in that you can decide to make an overpayment on your monthly loan or even leave without the hassle of ‘Exit fees’ to pay out.
The Standard Variable Rate is also what the Lender would switch you to after you completed any Fixed-Rate Mortgage deal.
This generally means that you will have a higher fee to pay (Subject to the Interest Rate being higher than your previous term). (As mentioned previously, please contact us before that happens to discuss your options).
Who is a Standard Variable Rate Mortgage for?
A borrower who wants the option of a straightforward type of mortgage that is easier to understand.
Anyone who requires flexibility or feels they will need to switch their borrowing in the near future or buy a property with short-term intentions as they intend to move again in the future.
Are there any advantages to a Standard Variable Rate Mortgage?
They tend to have lower arrangement fees to pay than some other mortgage products, such as the Capped-rate Mortgage or the Fixed-Rate Mortgage to name but two.
What are the disadvantages of a Standard Variable Rate Mortgage?
As stated, the rates on a Standard Variable Rate Mortgage can increase or decrease, making financial budgeting difficult.
10 Benefits of a UK Standard Variable Rate Mortgage
Standard Variable Rate Mortgages (SVR), can be enticing if you’re shopping for a new mortgage. Before committing, it is essential to consider the benefits and drawbacks.
This form of mortgage is typically more affordable than fixed or reduced options. In addition, it is more flexible, allowing you to refinance or prepay your mortgage without incurring penalties.
1. You are not locked into a fixed interest rate
Upon expiration of a fixed-rate, tracker-rate, or discount-rate mortgage, you are often switched to your lender’s standard variable rate (SVR). This can be far greater than the initial interest rate, meaning your payments will increase.
There is no assurance that your mortgage payments will be consistent. If you do not know the precise amount of your monthly payments, it can be difficult to plan a budget.
If you want flexibility, low fees, and the possibility to overpay, a Standard Variable Rate Mortgage may be an excellent option for you. However, a fixed-rate mortgage should be considered if you require greater payment certainty.
2. You can change your lender
If you are not satisfied with your Standard Variable Rate Mortgage, you can frequently switch to a new one without paying an early repayment fee (ERC). Prior to selecting whether to move to a new lender, it is necessary to shop around and find the best deal.
The best way to do this is to contact a Mortgage Broker who has access to the ‘All of Market’ software – Which covers all lenders, not just the high street banks and building societies.
Upon expiration of your fixed-rate period, your Standard Variable Rate Mortgage will typically revert to the lender’s ordinary variable rate (SVR). This is their standard interest rate, and it varies from lender to loan but is likely to be higher than the one you were paying.
This means that your payments may increase or decrease based on the Bank of England’s base rate.
This can be perplexing and aggravating, particularly if you intend to pay off your mortgage early. You should consult with a mortgage consultant to verify you are receiving the greatest price.
3. You can Remortgage
Upon expiration of a fixed-rate mortgage agreement, you will likely be switched to your lender’s normal variable rate (SVR). This rate is determined by lenders at their discretion and is subject to fluctuate as interest rates rise or fall.
Standard Variable Rate Mortgages are often the most expensive and can be more than 2% more expensive than a tracker or discounted-rate arrangement.
Therefore, it is essential to evaluate mortgage offers prior to the expiration of your present agreement. A proper remortgage could save you a substantial amount of money and prevent you from incurring an early repayment penalty on your new mortgage.
Depending on your circumstances, the remortgaging procedure could take weeks or months. It is advisable to begin looking many months before your current contract expires. It will also give you more time to select a good mortgage package and ensure that your application is processed efficiently.
4. You may overpay
A Standard Variable Rate Mortgage is a type of loan that requires monthly repayment of principal and interest. Typically, you can annually prepay your mortgage by 10% of the outstanding debt without incurring early repayment fees (ERCs). This applies to both fixed- and variable-rate arrangements, but not all lenders permit it.
Before making any overpayments, it is essential to review the terms and conditions of your current or prospective mortgage agreement.
Making mortgage overpayments can save you thousands of pounds in interest and accelerate the payoff of your house. However, it is not always the optimal choice.
5. You can obtain a mortgage offset
By linking your savings and checking accounts to your Standard Variable Rate Mortgage, offset mortgages offset your monthly savings balance against the amount you repay on your house loan. This can help you lower your monthly mortgage payment or pay off your mortgage faster.
However, they are not for everyone, thus it is important to consult with a mortgage broker.
Standard variable rates (SVRs) for these types of mortgages are typically between 2 and 5 percentage points over the Bank of England’s base rate.
They can be handy for someone with extra savings who do not rely on them for survival. Alternatively, they might be used to help a relative or child purchase a home without a down payment.
6. You can modify your repayment frequency
On the majority of mortgages, the standard variable rate (SVR) is the default option. Typically, it is a percentage point higher than the Bank of England’s base rate. At any time, it can be lifted or lowered.
Despite its limitations, the Standard Variable Rate Mortgage is an excellent option for many individuals. It allows you to take advantage of reduced interest rates and increased repayment flexibility.
Additionally, it helps you manage your monthly payments if interest rates rise. Nonetheless, you should ensure that you have a plan in place to deal with any unexpected adjustments. The easiest way to achieve this is to routinely save and budget. The greater your savings, the better off you will be over time. The objective is to develop the habit of saving at least 5% of your monthly income.
7. You can modify your monthly payment amount
Your lender determines the interest rate you pay on your mortgage, therefore it’s not unusual that they can modify their SVR from time to time. They are frequently influenced by the Bank of England’s base rate, but can also be influenced by changes in their cost of borrowing, corporate strategy, and even internal goals and objectives.
If you’re considering a Standard Variable Rate mortgage, it’s in your best interest to understand how they operate so you can get the best offer for your circumstances. Fortunately, the majority of them allow you to pay off your mortgage early or switch to a new plan without incurring a penalty.
8. You can adjust your repayment date
Standard Variable Rate Mortgages (SVR) often include a lower beginning interest rate than fixed- or discount-rate loans. However, these rates are subject to change at any time if the lender so chooses, which could increase your monthly payments.
The Bank of England’s base rate is increasing (As we write this), which is a reason to consider looking around and switching to a better offer. If you are concerned about your money, contact your bank, mortgage provider, or mortgage broker immediately and let them know you’re struggling so they can assist you in switching if necessary.
Generally, it is possible to complete this online or over the phone. Alternatively, you can engage a mortgage consultant to assist you in locating the greatest deal for your situation. They can assist you in avoiding falling behind on your payments and recommend strategies to save cash.
9. You can modify your repayment frequency
The majority of ordinary Standard Variable Rate Mortgages offer a multitude of payment options. You can alter the frequency of your payments, select a lower monthly cost, and even convert to a fixed-rate plan.
You may not have much control over the recommended or mandatory rate, but you can choose a mortgage with a custom-tailored interest rate. The trick is to compare what you have to what is available, you may be shocked by the deals offered by some lenders.
It can be a costly endeavour, so do your research before committing. You should also keep an eye out for interest-free agreements for which you may qualify. In addition, you should open a savings account if you haven’t already. This will enable you to earn interest on your savings and pay off your mortgage more quickly.
10. You can modify your monthly payment amount
The interest rate on a Standard Variable Rate Mortgage (SVR) can increase or decrease at the lender’s discretion. This can make budgeting tough, and you may end up spending more than necessary.
It is also susceptible to variations in the Bank of England’s base rate. When the base rate rises, lenders frequently boost their SVRs.
If you are on a normal variable rate, it is in your best interest to browse around for a better deal, as you can change it without penalty at any time. Consider a reduction on your SVR if you are entitled to one, allowing you to spend more money on your property.
10 Fundamentals of a Standard Variable Rate Mortgage
The Variable Rate Mortgage is a mortgage product where the interest rate can increase or decrease at any time, thereby causing a fluctuation in monthly payments. Unlike a Fixed-Rate Mortgage, there will be no option to actually ‘Lock in’ an Interest Rate and fixed payment, and the actual amount you pay every month could change.
A Variable Rate Mortgage will be affected by the Bank of England’s Base Interest Rate, and other defining factors.
Just to clarify, it should be noted that there is more than one type of Variable Rate Mortgage for you to consider. Each one has a slightly different way of calculating the interest rate you pay, with obvious advantages and disadvantages and these will depend on your actual needs. We cover all these on this website and the links are below for you to check out.
Types of Variable Rate Mortgage available to you:
Standard Variable Rate Mortgage (SVR) – Tracker – Discount – Capped-Rate.
If you are in need of help to find the best standard variable rate mortgage to suit your needs, or with a Standard Variable Rate Mortgage you already have, or any other type for that matter, please do not hesitate to contact us HERE and we will review your circumstances to see if we can help you.
Updated 2024