Every
mortgage
lender has a standard
variable rate, or SVR, of interest on which it bases
all its mortgage deals.
The standard variable rate is, in turn, based on the Bank
of England's base lending rate and this is decided
at monthly meetings of the Bank's monetary policy committee,
or MPC.
Every time the MPC raises its rate, mortgage lenders race to
increase their standard variable rates, generally by the same
amount.
And every time the MPC lowers its rate, the lenders do too
only often not so quickly!
But that doesn't mean
mortgage lenders charge the same as the Bank of England.
• Mainstream
lenders
These
are banks, building societies and other financial institutions
which target customers with reasonable credit ratings generally
set their standard variable rates at about 2 percentage points
above the Bank of England's base lending rate.
This means if the base lending rate is 5.5 per cent, most SVRs
will be around 7.5 per cent.
But some lenders will set theirs higher, while others, who are
trying to increase their customer base, might go a bit lower.
• Impaired
credit lenders
who specialise in lending to customers with poor credit histories tend to set their standard variable rates far higher, arguing
that this is only fair since they are taking a much greater
risk.
But if you have a reasonable credit history, there is
no reason why you should pay a costly standard variable mortgage
rate.
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