Everything you need to know about standard variable rate (SVR) mortgages

If you’re looking into buying a house, you may be wondering what standard variable rate mortgages (SVRM) are.

A standard variable rate mortgage is a type of mortgage loan that can change each month. It works by charging the standard variable rate, which is set by the lender. If you don’t remortgage your fixed, tracker or discount mortgage when it comes to an end, you will automatically be transferred to a standard variable rate mortgage.

Here, we’ll tell you everything you need to know about SVRMs, how they work and their advantages and disadvantages. We’ll also explain how Adjoin Homes’ rent-to-own schemes compare with SVRMs.

What is a standard variable rate mortgage?

A standard variable rate mortgage is a mortgage that charges the interest rate set by the lender. Since the rate is variable, it can be changed at any time and the total amount you pay can change each month. If the lender increases their rate, your monthly mortgage repayments will be more expensive.

If you are on a fixed, tracker or discount mortgage, you will automatically be transferred to a SVRM once the term of your mortgage deal ends. That’s if you don’t choose to remortgage, of course.

It’s likely that your lender’s standard variable rate will be much higher than the interest rate of your fixed, tracker or discounted mortgage. It’s therefore important to keep on top of when your initial rate is due to end so you can find an attractive new mortgage deal and avoid being charged your lender’s hefty standard variable rates.

At the time of writing, the average standard variable rate recently hit its highest level in 13 years. Between December 2021 and June 2022, the average SVR increased by 0.51 percentage points to 4.91%. To put this into perspective, each 0.25 percentage increase adds around £16 to the monthly repayments for the typical borrower with an average outstanding mortgage of £76,499.

How do standard variable rate mortgages work?

Each lender sets their own standard variable rate, which can go up and down at any point, taking your monthly mortgage payments along with it.

There are certain factors that influence a lender’s SVR including changes in the Bank of England’s base rate (although, unlike tracker mortgages, they don’t have to strictly follow it) and the lender’s cost of borrowing. For example, if the base rate was to rise by 1%, the lender will likely increase its SVR by 1% or higher. It is very unlikely that they will decrease their rate or even keep it the same.

Since base rates are currently changing more regularly than they have in recent years, standard variable rates are also fluctuating. Fortunately, you’re not locked in with a standard variable rate mortgage and you can choose to switch to a more competitive deal whenever you like.

The advantages and disadvantages of standard variable rate mortgages

Like any type of mortgage, there are pros and cons to SVRMs. Some of the benefits include:

• You’ll likely benefit if interest rates go down: In this situation, the lender’s SVR should also decrease and your mortgage repayments may go down
• Lower arrangement fees: SVRMs generally have lower arrangement fees compared to fixed and tracker mortgages. Sometimes they have no arrangement fees at all
• No fees for early repayments: If you overpay or pay off your mortgage early, you won’t have to pay a fee if you are on a SVRM

But there are downsides too. Possible disadvantages include:

• Higher monthly payments are likely: Lenders’ SVRs are not particularly competitive so it’s likely you’ll have to pay more for your mortgage each month
• It can be difficult to budget: Since the lender can change the SVR whenever they like, your payments may regularly go up and down thus making it harder to budget
• It can blow your monthly budget: If the SVR were to rise to a level above your budget, you might not be able to afford your monthly mortgage repayments

How Adjoin Homes compares

The problem with standard variable rate mortgages is that you have no control over how much you pay. If your mortgage deal defaults to an SVRM, you could end up paying more for your mortgage and you may go over budget.

At Adjoin Homes, we provide tailored packages with payment plans to suit your circumstances. If you’re finding it hard to get a mortgage for your dream house in your desired area, our rent-to-own schemes provide the solution.

There’s flexibility too. If at any point during your agreement and for up to 12 years you change your mind about the scheme, you can choose to purchase your property or walk away at any point.

In Summary

While standard variable rate mortgages are easy to get out of, they can be very unpredictable and expensive. Plus, thanks to soaring house prices, it can be difficult to get approved for a mortgage on the house of your dreams in the first place.

At Adjoin Homes, we provide the perfect solution by making it possible to buy your dream home in your dream area on a payment plan that suits you. With everything laid out clearly, you’ll always know where you’re at and how much you need to pay.

With Adjoin Homes, you can get in your dream home now.