What is a Variable Rate Mortgage

What Is a Variable Rate Mortgage?

A standard variable rate mortgage, also known as a reversion rate mortgage, is a mortgage whose interest rate changes as the bank changes their interest rate. Unlike a tracker mortgage a standard variable rate (SVR) does not track the bank of England base rate. What determines the lender's SVR is the lender.  So if the Bank of England base rate goes up by 1% your lender can choose to:

  • Increase their SVR by the same percentage, a higher percentage such as 1.5% or increase by a lower percentage e.g. 0.5%
  • Neither increase or decrease keeping your repayments the same
  • Decrease the rate - although from previous lending statistics this is the most unlikely of the three options.

Although most lenders will take into consideration the Bank of England base rate when setting their SVR they can however change their SVR even if the Bank of England's base rate remains the same.

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.

Usually you will automatically go onto a lender's SVR once your initial mortgage term (whether it is a tracker, discount or fixed) is over.

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Advantages of a standard Variable Rate Mortgage

  • Since the Bank of England base rate is tracking at 0.5% and has been since 2009 SVR mortgages have relatively low rates currently. When you are automatically switched to your lender's SVR mortgage post your initial rate ending it may be beneficial to stay on that rate before being locked into another long term deal.

* NB SVR mortgages can and will change, don't be reliant on the rate staying the same.

Disadvantages of a Standard Variable Rate Mortgage

  • If you are reliant on the SVR staying low to make your repayments, this may put you in a vulnerable position in the event of the rate been increased.
  • It may be considered a risky strategy to stay on a SVR mortgage as it offers little to no financial stability.

Whether you have let you initial mortgage rate run its course and have yet to set up a new deal, or you have purposefully stayed on your lender's SVR make sure you have a full understanding of the mortgage market by researching what is available.

You can check mortgage rate online. We search the top deals for you to give you a good understanding of how the market is operating currently. We then can put you in contact with an independent mortgage broker who will be able to give you free and impartial advice on mortgages that will suit your current situation. Set yourself a reminder 3-6 months before your current initial rate is set to end to research the market so you can get a head start on finding the right mortgage for you.

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The above post is intended to be informative but does not constitute advice - financial, legal or otherwise. Any opinions given are the author's own and do not necessarily reflect the views of SO Media or the Mitchell Farrar Group.


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