What Is a Standard Variable Rate (SVR) & Should I Switch?
A standard variable rate (SVR) mortgage has an interest rate set only by the lender (i.e. your bank or building society).
This rate is typically higher than the available deals, and can also change at any time.
This means being on an SVR mortgage can greatly increase your repayments’ overall cost.
Here you can find out more about SVR mortgages, including how you might end up on one without meaning to.
What is a standard variable rate mortgage?
A standard variable rate (SVR) mortgage is a type of mortgage where the interest rate is subject to change at the lender’s discretion. This means that your monthly mortgage payments could go up or down depending on the prevailing interest rates in the market.
How does an SVR mortgage work?
When you take out an SVR mortgage, you’ll be initially offered a fixed-rate introductory period, typically lasting between two to five years. Your interest rate will remain fixed during this period, and your monthly repayments will be predictable. However, once the introductory period ends, your mortgage will revert to the lender’s SVR, which can fluctuate based on market conditions.
What are the advantages of being on the standard variable rate?
Being on the standard variable rate (SVR) for your mortgage can have certain advantages, such as:
- Lower Initial Interest Rates:SVR mortgages often have lower initial interest rates than fixed-rate mortgages, making them more attractive for borrowers looking to save money upfront.
- Flexibility to Overpay:SVR mortgages typically allow you to overpay without incurring early repayment charges. This flexibility enables you to make additional payments towards your mortgage principal, potentially reducing your overall interest costs and shortening the mortgage term.
- Potential to Benefit from Interest Rate Drops:If interest rates fall, your SVR-linked mortgage payments will also decrease, potentially saving you money. This advantage is particularly beneficial if you anticipate interest rates to decline shortly.
- Simplicity and Transparency:SVR mortgages offer a straightforward structure, and you can easily access the current SVR and track its changes. This transparency can make managing your mortgage payments and planning your finances easier.
- Potential for Rate Reductions:Lenders may occasionally reduce their SVRs in response to market conditions or competitive pressures. You can enjoy lower mortgage payments without switching to a different mortgage product if such reductions occur.
What are the disadvantages of staying on the standard variable rate?
While there are some potential advantages to staying on the standard variable rate (SVR) for your mortgage, there are also several disadvantages that you should consider before making a decision. Here are some of the key drawbacks of staying on an SVR:
- Unpredictability of Interest Rates: SVRs are subject to change at the lender’s discretion, meaning your mortgage payments could fluctuate significantly depending on market conditions. This unpredictability can make it difficult to budget effectively and plan for the future.
- Exposure to Interest Rate Rises:If interest rates rise, your SVR-linked mortgage payments will also rise, potentially strain your finances. This risk is particularly concerning if you have a tight budget or interest rates are expected to increase soon.
- Lack of Long-Term Interest Rate Protection: Unlike fixed-rate mortgages, SVR mortgages do not offer long-term protection against interest rate fluctuations. This lack of protection can be a significant disadvantage if you plan to hold your mortgage for an extended period.
- Higher Interest Costs Over Time:While SVRs may have lower initial interest rates than fixed-rate mortgages, they can lead to higher interest costs over the long term due to the potential for interest rate increases.
- Missed Opportunities for Lower Rates: If interest rates fall, you may not benefit from the lower rates as quickly as borrowers with fixed-rate mortgages. This could mean taking advantage of potential savings.
- Reduced Bargaining Power: Staying on an SVR can limit your bargaining power when negotiating with lenders for better mortgage deals. Lenders may be less inclined to offer favorable terms to borrowers on SVRs.
- Increased Stress and Worry: The uncertainty of SVRs can cause stress and worry for homeowners, as they may constantly be concerned about potential interest rate hikes and their impact on their finances.
Should I switch from the standard variable rate?
Deciding whether or not to switch from the standard variable rate (SVR) on your mortgage depends on various factors, including your current interest rate, risk tolerance, financial stability, and long-term plans.
If you’re comfortable with the possibility of fluctuating interest rates and prioritize lower upfront costs or the flexibility to overpay, an SVR mortgage could be a suitable option. However, a fixed-rate mortgage might be a better choice if you prefer predictability and want to protect yourself from interest rate rises.
Consider your circumstances, risk tolerance, and long-term plans before making a decision that could significantly impact your finances. Carefully weigh the advantages and disadvantages of switching from an SVR to a fixed-rate mortgage, considering factors such as interest rate stability, predictable monthly payments, long-term financial planning, and potential missed opportunities for lower rates.
How can I remortgage to get off the standard variable rate?
Remortgaging to get off the standard variable rate (SVR) involves switching your mortgage from your current lender’s SVR to a new mortgage with a different interest rate, typically a fixed-rate mortgage. This process can help you lower monthly mortgage payments and protect yourself from future interest rate increases.
Here’s a step-by-step guide on how to remortgage to get off the SVR:
- Check your eligibility:Ensure you meet the eligibility criteria before initiating the remortgaging process. This typically involves having sufficient equity in your property, a good credit score, and a stable income.
- Compare mortgage deals:Research and compare mortgage deals from different lenders to find the best interest rate and terms that suit your financial situation and preferences. Consider the loan-to-value ratio (LTV), early repayment charges, and additional fees.
- Apply for a new mortgage:Complete the mortgage application form accurately once you’ve chosen a lender and mortgage deal. Provide all necessary documentation, including proof of income, identity, and property ownership.
- Obtain a valuation:The lender will arrange for a valuation of your property to determine its current market value. This valuation is crucial for assessing the equity you have in your property and the maximum loan amount you can borrow.
- Receive a mortgage offer:Upon completing the application and valuation, the lender will issue a mortgage offer outlining the terms and conditions of the new mortgage. Carefully review the offer and ensure you understand all the details.
- Finalize legal formalities:Once you accept the mortgage offer, your solicitor will handle the legal aspects of the remortgage, including reviewing the mortgage deed and transferring the property title to the new lender.
- Complete the remortgage:Once all legal formalities are complete, the lender will release the funds from the new mortgage, and your existing mortgage will be paid off. You will then start making monthly payments on the new mortgage.
Additional tips for remortgaging to get off the SVR:
- Shop around early:Start comparing mortgage deals before your SVR expiry date to secure the best rates and avoid potential interest rate increases.
- Seek professional advice:Consult with an independent mortgage broker or financial advisor for personalized guidance and assistance throughout the remortgaging process.
- Be aware of early repayment charges:Check if your current mortgage has early repayment charges (ERCs) and factor those into your calculations when comparing mortgage deals.
- Consider your long-term plans:Consider your financial plans and choose a mortgage term that aligns with your anticipated needs and circumstances.
- Prioritize transparency and communication:Maintain open communication with your chosen lender and solicitor to ensure smooth remortgaging.
