What Is the Standard Variable Rate?
Every mortgage lender has a standard variable rate (SVR). It is the interest rate they charge borrowers who are not on a specific deal such as a fixed rate, tracker, or discounted variable rate. You are placed on the SVR automatically when your introductory mortgage deal comes to an end.
The SVR is set by your lender and can change at any time. While it often moves in response to changes in the Bank of England base rate, lenders are under no obligation to pass on base rate cuts. They can raise or lower their SVR whenever they choose.
SVRs vary between lenders, but they are typically several percentage points higher than the best available mortgage deals. As of recent years, SVRs have ranged from around six to over eight per cent, compared to fixed-rate deals that may be two to three percentage points lower.
Why Is the SVR So Expensive?
The SVR acts as a lender's standard pricing for borrowers who have not locked into a specific deal. There are a few reasons it tends to be high:
- No commitment from the borrower – because there are no early repayment charges on the SVR, the lender charges a premium for this flexibility.
- Lender profitability – borrowers on the SVR are a significant source of revenue for lenders. The higher rate compensates for the lower margins on competitive introductory deals.
- Default pricing – the SVR is essentially the price you pay for doing nothing. Lenders rely on borrower inertia to keep people on this higher rate.
It is estimated that millions of UK homeowners are currently on their lender's SVR, many without realising they could switch to a cheaper deal. If you are on the SVR, it is almost certainly worth exploring your options.
How the SVR Compares to Other Rates
To understand the impact of being on the SVR, consider this comparison. A homeowner with a £200,000 mortgage over 25 years would pay significantly different monthly amounts depending on their interest rate. The difference between a competitive fixed rate and a typical SVR could easily be £300 or more per month.
Over the course of a year, that adds up to £3,600 or more in extra interest. Over several years on the SVR, the total additional cost can run into tens of thousands of pounds. This is why financial experts consistently advise homeowners to switch away from the SVR as soon as their deal ends.
Even if you cannot access the very best rates due to a higher LTV or less-than-perfect credit, almost any fixed or tracker deal will be cheaper than the SVR.
How to Get Off the SVR
If you are currently on your lender's SVR, you have two main options:
- Remortgage – switch to a new mortgage deal with a different lender. This gives you access to the widest range of rates but involves a full application, valuation, and legal work.
- Product transfer – switch to a new deal with your current lender. This is quicker and simpler, with less paperwork and no legal fees.
Because there are no early repayment charges on the SVR, you are free to switch at any time. There is no penalty and no tie-in period. The sooner you act, the sooner you start saving.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.