On the surface, the market forces that drive a standard variable-rate mortgage make it seem the least attractive of all the home loan options on the market.

But, if you’re willing to take a risk, this type of mortgage can pay off handsomely in the long run.

We’ve put together a comprehensive guide to standard variable-rate mortgages. Find out more here.

#1. What Is a Standard Variable Rate Mortgage?

A Standard Variable Rate (SVR) mortgage is a type of equity mortgage loan where the interest rate can fluctuate based on changes in the lender's standard variable rate.

This method allows homeowners, including those who might consider equity release at age 50 or beyond, to tap into the equity release finance options without having to sell their home.

The standard variable rate is set by the lender and can vary independently of changes in the broader interest rate market, such as the Bank of England Base Rate.

This flexibility can be crucial for those looking into fast equity release or seeking equity release guidance to better understand their options.

Other factors

The lender’s SVR isn’t necessarily linked to the Bank of England base rate¹, but changes in the base rate (particularly increases) will influence the SVR.

The SVR is usually higher than your fixed, discounted or tracker rate.

It will kick in when your initial loan period ends, unless you remortgage.

#2. What Are the Pros & Cons of a Standard Variable-Mortgage Rate?

SVR: The Pros

The pros of an SVR mortgage include a lower arrangement fee, no penalties for overpaying, and monthly payments may decrease if the interest rate drops.

Here are the pros to consider:

Lower Arrangement Fees

A standard variable-rate mortgage offers lower arrangement fees² than other types of mortgages.

Overpay Your Mortgage without penalties

A standard variable-rate mortgage allows you to overpay your mortgage with attracting fees or penalties.

Repayments Can Decrease With Interest Rates

The monthly repayments may drop if interest rates drop.

SVR: The Cons

The cons related to an SVR include unpredictability, affordability, and less competitive terms.

Here are the cons to consider:

Unpredictability

An SVR mortgage is unpredictable as it can rise and dip from month to month, making it difficult to budget.

Affordability

An SVR mortgage might become unaffordable if there’s a sharp rise in the interest rate.

Less Competitive

Because an SVR is particular to the lender, this type of mortgage is not very competitive.

Another type of mortgage, such as a fixed-rate, discount or track, may work better for you.

#3. How’s an SVR Set?

How an SVR is set depends on the individual financial institution.

A mortgage lender will usually adjust their SRV in line with the ebb and flow of the Bank of England base rate. 

However, the rate at which an SVR is pegged is also based on the lender's internal criteria, such as the cost of borrowing, risk management, and sales targets.

#4. What Is the Term of a Standard Variable-Rate Mortgage?

The term of a standard variable-rate mortgage isn’t limited like a fixed-rate agreement.

This means you’re able to opt for a better deal at any time.

#5. How Often Do Variable Rates Change?

Variable rates can change as often as the mortgage provider wishes, as it’s tied to their SRV.

Although SRVs follow the base rate to a degree, there’s no guarantee that they’ll decrease if the base rate’s on a downward trend.

#6. What Happens to My Mortgage if the Standard Variable-Rate Fluctuates?

What happens to your mortgage if the standard variable-rate fluctuates is that your repayments will go up or down, depending on the movement of the SRV.

Your lender will notify you by letter what your new rate will be and when it’ll come into effect.

#7. What Are the Options When My Mortgage Defaults to the Standard Variable-Rate?

There are various options available when your mortgage defaults to the standard variable rate.

Your options include:

• You can remain on the SVR
• Your can remortgage to a fixed-rate mortgage
• You can move to a tracker mortgage

#8. How Do SVR Mortgage Rates Compare to Rates on Other Types of Mortgage?

When compared to other types of mortgage, your monthly repayments are likely to be higher than tracker, discount rate or fixed-rate options.

Read on for more on other types of mortgages.

Tracker Mortgages

A  tracker mortgage does what its name says, it moves in line with the Bank of England base rate.

Discount Rate Mortgages

Your lender will discount their standard variable-rate for a fixed time, usually two or three years.

Fixed-Rate Mortgages

While the SVR is subject to the volatility of the market, a fixed-rate mortgage offers the peace of mind of a predetermined monthly repayment for a certain period of time, typically 2-5 years.

#9. Can I Pay off a Variable Rate Mortgage Early?

Yes, you can pay off a variable rate mortgage early.

An SVR mortgage is more flexible than a fixed-term mortgage in that you can make lump sum payments or pay off your mortgage without early repayment charges and penalties.

#10. Can I Overpay on a Variable Rate?

Yes, you can overpay on a variable rate.

Even increasing your repayments by a small amount every month can make a big difference in reducing your debt.

Common Questions

In Conclusion

Like any other mortgage, a standard variable-rate mortgage comes with its own set of strengths and weaknesses.

It’s worth considering these carefully before deciding if a standard variable rate mortgage is the one for you.