What is a Standard Variable Rate Mortgage?
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 when 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.