Standard Variable Rate Mortgages

If you don't frequently review your Mortgage, you may find yourself on unfavourable terms. Normally you agree to a fixed rate period with preferential mortgage terms. After this period, you revert to your lender's standard variable rate mortgage (SVR). If you are on an SVR, it is essential that you review your mortgage options as you could be paying more than you need to be. 

In this insight, we will cover what you need to know about the SVR and whether there are benefits to remaining on one.

Key Takeaways

• The SVR rate is normally more expensive than what is available with an agreed fixed rate or tracker.
• Whilst you are on an SVR, you will not have any early repayment charges.
• You should look at your remortgage options 6 months in advance of moving on to an SVR.
• 28% of the country are on an SVR, that means they are potentially paying more than they need to be. If you haven't reviewed your mortgage options recently you could also be paying more than you need to be.

What is a Standard Variable Rate Mortgage?

The Standard Variable Rate Mortgage is the mortgage product you revert to after your Mortgage product term expires. It's usually a higher Interest rate than a Fixed rate, but whilst on the SVR you can make changes to your Mortgage without incurring an early repayment charge.

How does a Standard Variable Rate Mortgage work?

When you decide upon your mortgage terms, you need to agree on a product type and a product term.

Product types determine if you agree to a fixed rate of interest, a variable rate of interest, or a tracker Mortgage.

Product term is the period for how long you agree to this product. Common product terms are 2 years or 5 years.

Generally, most people opt for a fixed term. This provides stability. It gives you peace of mind that your Mortgage repayments will not fluctuate. You will know exactly what you pay each month. After the product term expires, overnight, your Mortgage will revert to its SVR if you have not taken any further action.

The SVR is a variable rate. They normally track the changes in the Bank of England Base Rate.

You do not have to do anything ahead of this change. Your product term will expire and you will automatically change to the SVR. If you are unsure when this will happen you can check your Key Facts Illustration (KFI) for your Mortgage. The KFI is one of the documents you receive when you agree to your mortgage and confirms the details, including when you roll off your fixed period.

Depending on your circumstances, it might be worthwhile to see if you can remortgage. Remortgaging will allow you to avoid paying any extra interest than you could pay if you do move to the SVR.

If you are considering remortgaging but are not on the standard variable rate, read our insight 'Can you remortgage early?' 

What happens to your mortgage on the SVR?

There are a few changes that will happen to your Mortgage when you finish your product term and move on to an SVR:

Your Interest rate will change

Previously, you agreed to an Interest rate for a fixed period. That rate is no longer what you pay. Instead, you pay the Interest rate set by the lender.

The period of stability you previously agreed to has now expired

 You are no longer in a fixed term. If the lender decides to change its SVR, up or down, your rate will follow.

Early repayment charges expire

What do you need to do before moving to a SVR?

As you begin to move towards a standard variable rate mortgage, it's a good idea to seek Advice.

You can arrange a new Mortgage product up to 6 months in advance of your product term ending. If you organise a product transfer or Remortgage with roughly 2 months' notice, you should be able to avoid moving to the SVR. 

Advantages of the Standard Variable Rate

No Early Repayment charges

You can make overpayments without a fee. This is useful if you intend to clear your mortgage in full within the next few months.

Remortgage without penalty

Mainly because ERCs have been dropped it opens up more flexibility for remortgaging. You can consider moving your Mortgage elsewhere, taking advantage of better rates, without incurring a fee.

Prompts you to seek Advice

Things change in your circumstances. By moving on to an SVR, you could face an unwanted higher interest rate. It prompts you to think about your circumstances and apply for a mortgage that is more appropriate for you.

Your Mortgage repayments may come down

There are some borrowers who found themselves in a high Loan-to-Value bracket, if their original interest rate was higher than the SVR set by the bank, they might end up paying less interest.

Disadvantages of the Standard Variable Rate

No stability in your repayments

As this is a Variable rate, it can go up and down. If the SVR changes frequently it can mean you are not as well prepared for your repayments, month to month.

Higher Interest Rates

Generally, the SVR is higher than what would be available in the market for a Fixed rate. If you are looking for a cheaper interest rate, you should try to shop around before you move to the SVR. Doing that should ensure you do not pay any extra interest than what you may do on the SVR. Allow a minimum of 2 months before the end of your product term to organise this.

You have the decision to make

Whether you are ready or not, you have the decision to make. The timing will not always be right for you, and you could be penalised by higher interest if you are not ready. You will need to decide whether you want to stay on the SVR or arrange a Remortgage. If you decide to Remortgage, you have some administration to do. If you are looking for help with administrative tasks, speaking with a Mortgage Adviser can help.

What is my Standard Variable Rate?

Your key facts illustration will have your SVR quoted and how it will impact your repayments. However, that will be calculated based on the SVR at the time you arranged your Mortgage. This may not be the current SVR that the lender has set. Therefore you will need to contact your existing lender to find out what it is.

It is worth trying your mobile app or online banking as it is becoming more common for this information to be available to you.

A Whole of Market Mortgage Adviser will also have the latest up-to-date information on SVRs and should know what your revert-to rate will be. It is normally the case that the Bank sets one SVR for each mortgage type. For example, Buy to Let Mortgage types have their own SVR, and residential Mortgages have their own SVR. Loan to Value does not impact the Standard variable rate.

Should you stay on the Standard Variable Rate or switch?

Unless you have plans to benefit from no ERCs, most people will not benefit from remaining on an SVR. Even if you are not looking for stability in your repayments, it is generally the case that interest rates in agreed products, with set terms, will be lower than SVRs. That means paying less interest.

If you decide to switch you should check if there are any fees to move away from the SVR. It is not common, but you will not have a definitive answer unless you check the terms of your Mortgage. If there are, a Product Transfer may be more suitable.

Ultimately, you will need to seek advice to answer the question, a general question cannot be applied to all without consideration for individual circumstances.

Should you wait for Interest Rates to come down before Remortgaging?

Everyone will have an opinion on whether interest rates will come down or not. However, it's impossible to answer this question without a crystal ball.

What is important is that you consider your individual circumstances before making a decision based on external circumstances. However, your circumstances may be influenced by your personal opinions on Interest rates. For example, if interest rates go up, it means you pay more in interest. That could be when you decide it is more appropriate for you to clear the Mortgage quicker, if possible.

Talking these options and opinions through with a Mortgage adviser can allow you to put a plan in place to ensure you find the most appropriate mortgage for your needs.

Remortgaging from the SVR

If you want to avoid the SVR, you have a few options. You can consider:

• Pay your mortgage off in full
• Arrange a product transfer with your existing lender
• Remortgage to a new lender

Remortgaging can allow you to review the whole of the market and seek out the best interest rates for you. It is advisable you allow 2-3 months before the end of your product term, as there will be conveyancing work to complete which can take up to 4-8 weeks depending on case volumes.

For more information on Remortgaging, including FAQs, you can view our Remortgage page.

If you are looking to see how your repayments can change on a Standard Variable Rate, you can use our Mortgage payment calculator.

If you are looking for advice on your mortgage, you can use our Sunny Fact Find to get started. The answers you provide help us to find the most suitable adviser for your needs. They will then contact you for a no obligation conversation, explaining how they can help, and you can decide how to proceed.