What is a mortgage? Standard variable rate mortgages

Terraced houses

It can be risky to stay on your lender's standard variable rate mortgage

What is a standard variable rate mortgage?

A standard variable rate mortgage (also known as an SVR or reversion-rate mortgage) is a type of variable-rate mortgage. The SVR is a lender's 'default' rate - without any limited-term deals or discounts attached. 

When a fixed, tracker or discount mortgage deal comes to an end, you will usually be transferred automatically onto your lender's SVR.

Who sets standard variable mortgage rates?

A lender can raise or lower its SVR at any time - and as a borrower you have no control over what happens to it.

Standard variable rates tend to be influenced by changes in the level of the Bank of England's base rate. However, a lender may also decide to change its SVR while the base rate remains unchanged.

Lenders' standard variable rate mortgages typically range from around 2% above the base rate (currently set at 0.25%) to 5% above it or even more. When we surveyed 5,000 mortgage holders in April 2016, a third of the respondents told us they were currently on their lender's SVR.

5.07%Average standard variable rate - August 2016

Standard variable rate mortgage benefits

Until August 2016, the Bank of England base rate had remained at a historic low of 0.5% since March 2009. On 4 August 2016 the base rate was lowered further still, to 0.25%. As a result, many SVRs are at relatively low levels. 

So, if your previous mortgage deal has come to an end and you have been transferred onto a low SVR, you may be able to take advantage of that low rate by staying on it, and not looking for another deal.

Standard variable rate mortgage drawbacks

However, this is a very risky strategy - as a lender's SVR offers no rate security. A lender can increase its SVR at any time. Several lenders have increased their SVRs in recent years, sometimes by significant margins.

If you are on a tight budget and relying on your SVR remaining low, you're in a very vulnerable position. In this case, it is very important you try to remortgage onto a fixed-rate deal (which offers rate stability) before it's too late.

Need mortgage advice?

The Which? Group offers an independent mortgage advice service, Which? Mortgage Advisers, that looks at every mortgage from every available lender. You can call the service on 0808 252 7987.

More on this...

Last updated:

August 2016

Updated by:

Dean Sobers

 

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.