What is a standard variable rate? (SVR)
The standard variable rate or SVR as it is often referred to, is the standard interest rate a mortgage lender charges its borrowers whilst they are not in one of their particular mortgage products. Standard variable rate is the standard interest rate that you are placed on automatically when your current deal ends, so it pays to check once your fixed, tracker etc rate has finished what SVR you are getting.
The standard variable rate is set in correlation to the BoE base rate and as such can vary up and down. Do not be confused, you do not get the BoE rate, the SVR is based on the BoE rate.
How does an SVR work?
The base rate is set by the Bank of England monetary policy commission (MPC), for example at 3.25%. Most mortgage lenders Standard Variable Rate is 2% above the BoE rate, so in this example the lender would likely have an SVR of 5.25%.
Whilst you may consider tracking the base rate as a good thing (much like a tracker mortgage) most SVRs are un competitive, furthermore if the rate cycle goes in an upward trend, costs could soon become out of hand.
Be quick to act, The Lenders Are!
Banks are very good at ensuring their SVRs track the base rate, and often they out-track the base rate change (i.e. they increase their SVRs greater than the amount the BoE rate has increased by). Furthermore, when rates drop, they may not droop them as much.
How To Avoid Paying a standard variable rate?
It is never a good idea to pay your lender’s standard variable rate, there are always more competitive deals available in the mortgage marketplace. The 2% above the best deals SVRs usually charge is equivalent to £4,000 a year on a 200,000 mortgage!
What To Do If Your Paying a SVR
If your currently paying your mortgage lenders SVR, are about to reach the end of your fixed tracker etc deal term or simply are not sure then now is the time to check and look for the best mortgage product available to you, remember this can save you thousands a year on a typical mortgage.
Now that you’ve checked, are you paying an SVR or coming to the end of your Deal period?
Well if you are you want to act fast as the remortgaging process can take months, and with SVRs costing the average mortgage borrower an additional £250 per month over the best products available on the market it will pay dividends.