This week’s podcast is answering the question, what is an SVR? Mortgage Broker, Anthony Randall, joins Craig on this podcast.
What does SVR actually mean?
So the SVR is the ‘standard variable rate’ that a lender sets. It’s a variable rate that each lender has set, specific to them. It’s not set by the Bank of England or any central source.
Does it vary much? Are they all pretty similar?
They can vary quite drastically, depending on the lender. You tend to find that it won’t be as good as other rates that are out there. But they certainly vary from lender to lender.
How does the standard variable rate work?
Most clients end up on the SVR once their fixed rate term ends. So, for example, if you are in a five year fixed rate term, at the end of that five years, you might still have 30 years left on your mortgage. If you do nothing in terms of remortgaging or doing a product transfer, you will automatically transfer to that lender’s standard variable rate at the time.
Because it’s a variable rate, until you actually go on to it you won’t know what it’s going to be. It can change whenever the lender decides to change it.
Is there any system to how or when lenders change their SVR?
Not necessarily, but the market has an effect. At the moment, because obviously the Bank of England base rates are going up, standard variable rates are following that trend. We’re seeing rates at 5%, 6%, and 7% at the moment on a variable rate, and if the trend continues we don’t know where it will end up. So a lot of people are getting into a fixed rate as quickly as possible.
Are there any positives about being on an SVR?
It doesn’t tend to be good, but in certain scenarios it can work. For example, if you’ve got bad credit and the debt is due to drop off of your credit file in the next month, it is probably worth going onto the standard variable rate to get a better mortgage deal once your credit record is clean.
But these kinds of scenario are rare, in all honesty. Most of the time it is best to avoid the SVR.
Do SVR rates change often?
At the moment we’re seeing the rate changing regularly, in line with new rates being set by the Bank of England. You can pretty much guarantee that if base rates rise, then the lenders’ SVRs will follow. But any lender can change the rate one day and change it again in a week’s time.
It’s down to them. It’s another reason to avoid the variable rate – you’d get a better fixed rate mortgage. On the SVR you won’t know what you’ll be paying each month because your rate could change.
Obviously the standard rate does come down at times, but in the current climate rates are likely to keep going up.
People’s standard variable rates are currently anywhere between 5% and 6% – but on a fixed rate at the moment you’re probably looking at 3% to 4% depending on your situation. So on a fixed rate you’re saving yourself 1% to 3% interest – which doesn’t sound like a lot, but in the real world it can genuinely be hundreds of pounds a month.
How do I avoid going onto the standard variable rate?
You will only end up on the SVR if you do nothing as the end of your fixed rate deal approaches. So around six months before your deal is due to end, you should start looking at remortgaging or taking a product transfer.
Nowadays, remortgaging isn’t as difficult as it used to be. Most lenders offer their own solicitors or you can get solicitors that do the legals for next to nothing. With a product transfer, too, there may not be an early repayment charge.
A lot of lenders offer a six month offer period on their mortgage so we can get you a rate booked in now all ready and waiting to go. When your deal ends on X date, your new deal starts on the same day, so you don’t end up on that variable rate at all and you save that money.
At the moment, if we can get your rate booked now for six months’ time, you’re likely to get a better deal than if you wait. But if rates were to drop, we can still negotiate a better remortgage closer to the time – so it’s a win-win.
If my deal ends in one or two months time, is that too late?
It’s not necessarily too late. Two months is still plenty of time – we could still technically get it done. That’s dependent on how long solicitors and lenders take. And if we stay with your existing lender, that doesn’t involve valuations or solicitors or so it can be done quite quickly.
As I mentioned, six months is the ideal time because it gives us plenty of time to look and you could lock into a lower interest rate than you will find next year.
What if I’m already on the SVR?
The longer you are on that standard variable rate, the more interest you’re going to be paying. The sooner we can get you onto a fixed deal, the better. If you’ve left it to the last minute we might have to wait a month or two for solicitors and valuations and things, and you’ll just have to pay more interest in the meantime.
What’s your key advice on getting the most suitable deal at the moment?
Essentially, if the end of your current fixed deal is coming up soon, look at it now, don’t wait.
There’s no need to be wasting money in the current climate, especially with the rising cost of living and everything else. Just talk to your broker and start looking at the options.