What is a mortgage? What is a standard variable rate mortgage?
It can be risky to stay on your lender's 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.
A lender can raise or lower its SVR at any time - and as a borrower you have no control over what happens to it.
Who sets standard variable mortgage rates?
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 0.5%) to 5% above it or even more.
Standard variable rate mortgage benefits
For over two years, the Bank of England base rate has stood at an historic low of 0.5%. Most lenders have significantly cut their SVRs to reflect this.
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. Several lenders hiked up their SVRs in the first few months of 2012, and more are expected to follow suit.
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?
We believe you should seek independent mortgage advice before taking out a mortgage. The Which? Group offers an independent mortgage advice service, Which? Mortgage Advisers, that looks at every mortgage from every available lender. You can also find an independent mortgage adviser using the Unbiased.co.uk website.
- The best mortgage deal - how to find the cheapest mortgage for your circumstances
- Mortgage fees - the range of fees you might pay to set up your mortgage
- Which? Money Helpline - for answers to your tracker mortgage and other finance questions
