Standard Variable Rate (SVR) - Everything You Should Know
According to data published in Mortgage Strategy, about 3m UK borrowers are currently paying their lender’s standard variable rate.
But what is a Standard Variable Rate (SVR) mortgage? What are the pros and cons? And what’s the difference between an SVR mortgage and other types of mortgage? Keep reading for answers to these questions and more.
What is a standard variable rate?
A standard variable rate – often called an ‘SVR’ – is the standard interest rate offered by a mortgage lender.
The rate is determined by each individual mortgage lender, and is not directly affected by any changes to the Bank of England Base rate.
What is a standard variable rate mortgage?
A standard variable rate mortgage means that you’re paying your lender’s standard rate of interest on your home loan.
Typically, you revert to your lender’s SVR once your introductory fixed, discounted or tracker mortgage deal has ended. Some mortgage lenders also offer Standard Variable Rate mortgages.
Your lender can change the SVR at any time, irrespective of what happens to the Base rate.
On an SVR mortgage your payments will change as and when your lender changes the variable rate, although you generally won’t face any Early Repayment Charges if you repay part or all of your mortgage.
What is the average SVR?
As every lender can set their own Standard Variable Rate, it differs from company to company.
Consumer group Which? reports that the average SVR in the UK in March 2017 was 4.56%.
Standard variable rate - advantages and disadvantages
The main benefit of a standard variable rate mortgage is that you have the flexibility to pay off lump sums – or repay the whole mortgage – at any time. You will also benefit from a reduction in your mortgage repayments should your lender reduce their standard rate.
There are drawbacks with Standard Variable Rate mortgages, however. They are generally more expensive than other products. With many fixed and discounted rates available at around 2-2.5%, paying an average SVR of 4.56% means that you are potentially paying much more each month than you need to.
You also face the uncertainty of not knowing when your repayment may change.
What is the difference between a standard variable rate and a tracker?
Tracker rate mortgages are linked to the Bank of England Base rate. This means that when the Base rate goes up and down, your mortgage rate will rise and fall accordingly. Read more information about tracker mortgages in our handy guide.
As standard variable rate mortgages aren’t directly linked to the Base rate, your lender can increase or reduce the rate at any time. Even if the Base rate were to fall, your payments would not necessarily reduce.
What is the difference between a fix rate and a variable rate?
Fixed rate mortgages guarantee your mortgage payments at a fixed level for a specified period of time. It doesn’t matter if interest rates rise or fall during your fixed rate period as your monthly repayments won’t change.
The interest rate on a variable rate mortgage can rise and fall. On a standard variable rate mortgage your payments will change each time your lender decides to change their SVR.
Which is better, a fixed or a variable interest rate?
This depends on your personal circumstances. If you want the certainty that your repayments won’t rise, then a fixed rate may be more suitable.
If you would like the flexibility to make repayments to the mortgage at any time, a variable rate may be better for you.
Can my lender increase my standard variable rate?
Yes. Your lender’s SVR is not linked to the Base rate, and so they can change the interest rate charged at any time.
Lenders generally raise their standard variable rate each time the Bank of England raises the Base rate. However, lenders can also raise their rate at other times. For example, Bank of Ireland increased its SVR in 2012 despite no change to general interest rates.