Mortgage Sorter | standard variable rates | why you should never pay an SVR

(*Unless you have a poor credit history and even then you shouldn't pay one for more than a few years)

The standard variable rate, or SVR, is the basic interest rate on which a mortgage lender bases all its mortgage deals.

These average about two percentage points above the Bank of England's base lending rate.

So if the Bank's base lending rate is 5.5 per cent, most mainstream mortgage lenders SVRs will be around 7.5 per cent.

But, provided you have a reasonable credit history, you should never actually pay this rate.

This is because lenders also offer a range of far cheaper fixed interest and discounted variable rate deals.

These can last anything from six months to the full mortgage term, which is traditionally 25 years.

However the most popular deals tend to last between two and five years.

Why standard variable rates are a waste of money

Imagine you wanted a100,000 repayment mortgages

If a lender offered you a standard variable rate of 7.5 per cent, assuming this didn't change, over five years the repayments would total44,339.

But you would be crazy to accept, because that same lender might also have several far cheaper fixed and discount deals.

If, instead, you took a five-year fix at 5.5 per cent, the repayments would be36,844 saving you a massive7,495!

Don't get tied into a standard variable rate

When you're shopping around for a good value fixed-rate or discount deal, always check the early redemption penalty.

Avoid deals with an extended redemption penalty, which ties you into paying the lender's standard variable rate beyond the fixed or discounted period as this could more than cancel out the savings you make.

For more on early redemption penalties, read Early redemption penalty explained and How to avoid paying an early redemption penalty.

Want even more detailed description of what a Variable Rate Mortgage is?

To read more on this subject please see the list below or your mortgage guide or your home buying guide

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