What is a standard variable rate? (SVR)

A standard variable rate (SVR) is the standard interest rate that a mortgage lender charges its borrowers if they are not taking one of their more competitive deals.  It is the standard interest rate that you are placed on automatically when your current deal ends.  The standard variable rate is set by the lender in keeping with the current Bank of England base rates (BoEBR).  As the base rate can vary, so lenders’ SVRs vary.

This is how it works….

The base rate is set by the Bank of England, for example, at 5%.  Mortgage lenders then set their standard variable rates in line with this rate, often setting their SVRs at around 2% higher.  This means if you are paying your lender’s standard variable rate then you could be paying 2% higher than the base rate – or in this example, 7%.  

The reason the standard variable rate is variable is because The Bank of England can change the base rate at any point, meaning that your lender has the option to increase their variable rate. These unpredictable rates can work in your favour if the base rate were to plummet, but at the same time if rates soar then budgeting for the extra costs involved can be tricky.  

When a base rate change occurs, a large percentage of lenders do tend to act quickly by raising their SVRS in response.  Lenders are often criticised by the press if they are seen to be hiking up rates unfairly, particularly when it’s not in keeping with the amount that the base rate has risen by. 

So how to do you avoid paying a standard variable rate?

It is never advisable to pay your lender’s standard variable rate because there are far better deals available on the market.  If you are paying an extra 2% more than the most competitive deals available, then that 2% can make the difference of £2,000 a year on a £100,000 loan.

If you are currently paying a SVR, then now is the time to switch to a better deal.  Or perhaps you currently have a great deal which is due to come to an end.  Do not get caught out by being switched automatically to your lender’s SVR.  Make sure you look at the different options available to you and start the remortgage process well in advance.  The process can take up to several months.

If you don’t have time to investigate your mortgage situation and find the best deal for you, why not contact a reputable mortgage broker to get them to do the work for you.  An expert mortgage adviser can help you find the cheapest deals.  Look for one like L&C who does not charge a fee for advice. 

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