The Move to the Standard Variable Rate
When your initial mortgage deal comes to an end, whether it is a two-year fix, five-year fix, or tracker rate, your lender will automatically move you onto their standard variable rate (SVR). This happens unless you have already arranged a new deal.
The SVR is the lender's default interest rate, and it is almost always significantly higher than the introductory rate you have been paying. For example, you might have been paying 4.5 per cent on a fixed rate, but the SVR could be 7 per cent or more. On a £200,000 mortgage, that difference could mean paying hundreds of pounds more each month.
There is no fixed period for the SVR. You remain on it until you either remortgage, do a product transfer, or pay off the mortgage entirely. The rate can also go up or down at your lender's discretion, often in response to changes in the Bank of England base rate.
Why You Should Avoid Staying on the SVR
Staying on the SVR is one of the most expensive mistakes a homeowner can make. Research consistently shows that millions of UK mortgage holders are on their lender's SVR, collectively paying billions more than they need to each year.
The SVR is almost never competitive with the best deals available on the market. Even if interest rates have risen generally, you can usually find a fixed or tracker deal that is considerably lower than the SVR.
The only situation where remaining on the SVR might make sense is if you are planning to pay off your mortgage very soon and do not want to commit to a new deal. In all other cases, switching to a new deal will save you money.
What Steps Should You Take?
To avoid being caught out when your deal ends, follow these steps:
- Know your end date – check your mortgage statement or contact your lender to confirm exactly when your current deal expires.
- Start looking early – begin comparing remortgage deals three to six months before your deal ends. Many lenders let you lock in a rate well in advance.
- Compare your options – look at both product transfers with your current lender and remortgage deals from other lenders to see which offers the best value.
- Act promptly – submit your application or product transfer request in good time to ensure the new deal starts before the old one ends.
If you do end up on the SVR for a short period, do not panic. You can still remortgage or do a product transfer at any time. The SVR does not lock you in, and there are no early repayment charges to worry about.
Will Your Lender Remind You?
Most lenders will write to you a few months before your deal expires to let you know your options. This letter typically includes details of the product transfer deals available to you. However, you should not rely on your lender to offer you the best deal. Their product transfer rates may not be the most competitive on the market.
It is also worth noting that some lenders are better than others at communicating. Do not wait for a reminder. Instead, put a note in your calendar six months before your deal ends so you can start looking at your options in good time.
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.