The standard variable rate is a nightmare. There’s no reason to pretend that it isn’t, and you should want to avoid it at all costs. For a lot of mortgage customers, well at least those who are receiving continued quality mortgage advice, the standard variable rate or SVR is something that is avoided easily. In fact, if you use the right advisor, you won’t need to worry about it at all. However, there are literally thousands of mortgage customers who have either secured a mortgage through a sub-par advisory service or somewhere along the line lost track of where they are in their fixed rate deal.
Halifax, NatWest, Barclays, Lloyds, First Direct, Santander, Nationwide. Other than all being popular high street banks, what do they all have in common? All these lenders have standard variable rates that catch mortgage customers out every day. But what is the SVR mortgage and how does the Santander standard variable rate and other lender SVRs affect your mortgage payments?
In this article we will help you to understand what the SVR is, what the implications of being on the SVR could be, how to avoid going on the SVR and, how to ensure that you are getting the best mortgage advice and best deal available.
What does Standard Variable Rate mean?
The standard variable rate is a rate set by mortgage lenders (banks, building societies etc.) that is standard across all mortgage products and is usually a lot higher than the actual products they offer. It is normally a certain percentage above the Bank of England base rate which is currently at 0.75%. Most mortgage customers when securing a mortgage rate and product will opt to secure their rate for a period of either 2 or 5 years with some securing over 10 years. Fixing your rate allows you to be comfortable in the knowledge that your mortgage rate and payments won’t go up at all over 2 or 5 years. Once your fixed product ends, you will automatically revert to the lender’s standard variable rate. Because it is a variable rate, this means that the mortgage lender can change the rate at any point.
What is the current Standard Variable Rate?
To really put this into perspective, an example interest rate of 1.11% on a loan of £900,000 over 21 years would mean that someone would pay around £1,079 a month. The SVR for this lender is a whopping 3.74%. If this fixed rate ended and the homeowner let their mortgage slip on to the SVR, this repayment would go up to a staggering £2,979 a month! Standard variable rates can go all the way up to around 5% meaning this hypothetical situation could cost someone £5,775 a month.
Although this figure sounds ridiculous to most people, there are a shocking amount of people who do pay these high rates purely because they don’t know what to do. Unfortunately, without having the SVR carefully explained to you at application stage and vigilantly monitored and guided by a quality advisor, this nightmare becomes reality.
How do you find the SVR?
A lot of the confusion around the SVR is surprisingly where to find it. When you apply for a mortgage, you will be issued with several documents from the lender detailing all the ins-and-outs of your new loan including…. you’ve guessed it. The SVR.
Before your loan is offered, you will get a mortgage illustration from your advisor which shows you a rundown of the costs involved, the terms and conditions of your loan and the repayments you will make. It is in this section of the document that you will find the lender’s current SVR so make sure that you pay particular attention to this.
After you receive your mortgage offer, you will be issued with your official offer document. Essentially a more formal version of the mortgage illustration, you will find the lender’s SVR rate in exactly the same place. Your illustration and offer will also tell you exactly when your product ends and when you will revert to the SVR.
Some figures suggest that 800,000 households are currently on a standard variable rate rather than a fixed product meaning that 800,000 households are overpaying on their mortgage. Although fixed rates themselves have been steadily rising since the end of 2021, rates are still incredibly low and fixing your mortgage is a more appealing option than the SVR. By contacting a qualified advisor, they should never allow you to fall onto the standard variable rate and re-structuring your loan and fixed product is something that they will be able to accommodate for you.
Should I stay on Standard Variable Rate?
If you are going to take anything out of this article today, it’s this. Act fast and act now.
Literally monthly we see clients who are on the SVR and have been for several weeks, months, and even years believe it or not. As you have already seen in the example we gave above, being on an SVR can be crippling to your bank account and force you to pay way above your comfortable amount.
Again, this happens for several avoidable reasons, and these are as follows:
- People aren’t keeping track of their product
It can be easy to become comfortable in your fixed rate bubble, especially if you have a 5 year or longer fixed term. Sitting on your fixed product and not worrying about rate changes is the point of fixing your mortgage in the first place but, not monitoring is a big faux pas.
- People don’t know what to do if they are on the SVR or think it is the best option
Often when we speak to people who have slipped onto the SVR, a common trend is that they often don’t know what to do when they do go onto the rate. It is human nature to want to avoid potential hassle so some people who still feel comfortable with the SVR payments will delay things intentionally to avoid any pre-conceived stress. For others, they simply don’t know what to do when they go on the SVR and don’t have the support at hand to ask for help so they sit, and sit, and sit. Wasting hundreds and even thousands of pounds a month.
So, what can you do?
Your mortgage lender, no matter who it is, has a legal responsibility to offer you another rate when you are either on the SVR or approaching it. As long as you have kept up with your current mortgage repayment commitments you then you have the right to switch to a better, more competitive rate with that lender. A qualified and experienced mortgage advisor can help you to do this with relative ease.
At Oportfolio we have been helping our clients to avoid the SVR and move on to a new product for over 13 years and we insist that our clients never go on the standard variable rate. That’s why we contact our client 6 months before their fixed deal is due to end to discuss their options moving forward and we help you to create a plan of action.
The first step, whether you secured your original mortgage direct through a bank or not is to get in contact with an advisor. Normally an initial phone call consultation is free of charge and your advisor will take time to understand you, your situation, and what your ultimate goal is.
Once your advisor has got a clear understanding of the overall picture, they will make some recommendations about how they think they can help and what they think makes the most sense to do. If you are happy with everything they are recommending, they will take you through to the next steps in the process of securing you a new deal.
What options are available to me to avoid the Standard Variable Rate?
When avoiding the SVR, you will most likely have one of two options and either option will be carefully considered by your advisor with the pros and cons of each scenario weighed up before you commit to anything. Your first option is to look at doing something called a product transfer or PT. Your second option is to do a remortgage. Each option has its merits, and both will save you from the costly SVR.
A product transfer is literally what it says on the tin. You transfer your current product to another one with the same lender. Remember when we said earlier in the article that your lender has the legal responsibility to offer another rate? Well, this is where you make the most of this. Your lender will have a catalogue of rates and products that they can offer you and by using a mortgage advisor to transfer your mortgage to a new product you will have easy access to these rates and other exclusive products.
The product transfer option is often favoured by people, especially if they have been happy with the lender so far and if their new product options are still as competitive. Also, as you are already a client of the bank or building society, it is often a lot smoother process with less requirements that you need to meet compared to a brand-new application with a new lender.
Alternative to porting your mortgage?
The remortgage option is a different kettle of fish but is regularly the best one when sticking with your current lender isn’t the smartest move. Again, your mortgage advisor will carefully weigh up your options with you and help you to choose the best route forward. Sometimes it will simply make more sense for you to switch your mortgage to a different lender rather than stay with your current one if the rates with another lender are better.
You wouldn’t stay with a broadband provider who was charging £100 a month if another provider was offering the same service for £50 a month, would you? It’s a similar principle and could save you thousands of pounds in the long run. Of course, the remortgage process is a little different to a product transfer as you are literally cancelling your current mortgage and getting a brand-new mortgage on your property. The process will be very similar to when you first got your mortgage and the lender will ask to see standard mortgage documents such as 3 months’ pay slips, 3 months bank statements, proof of ID etc. (See our typical lender requirements page on our website here).
Your mortgage advisor and their admin team will take all the potential stress of applying for the mortgage away from you and will arrange the application in its entirety for you. They will let you know everything that the lender requires and will keep you updated every step of the way so that you can have peace of mind that your mortgage is in good hands.
Working with Oportfolio. SVR experts.
Our main aim and goal with every client we help is to make sure that you feel comfortable and feel like you are in the right hands. We want you to trust us to help with your most important financial decisions so that you can get the best out of your mortgage. All our advisors are experienced in every aspect of mortgages and protection and our administration team are experts in the mortgage and protection application process meaning that your applications will go through smoothly and efficiently. Saving you time and money.
When you decide to work with Oportfolio, you will have your own personal advisor and administrator who are there to help you along every step of the way. They will take the stress out of everything for you and will make sure that you get what you need. Our incredible efficiency in processing applications means that you will be kept up to date with everything that is going on and will be the first to know once your application has been approved.
So hopefully we have managed to explain to you what the Standard Variable Rate is, what it actually means, what the repercussions of it can be, and how to avoid paying thousands in extra interest per month or year. You only need to look at the news to see that the cost of living is rising, and the Bank of England base rate will undoubtedly increase again so ultimately rates (not just the SVR) will rise across the board so now is a better time than ever to look at your current deal.
The Chancellor of the Exchequer Rishi Sunak warned today that interest rates are likely to rise to 2.5% over the next year and that mortgage customers not on a fixed rate will see an increase in their monthly payments. So, if you, like thousands of others are unsure about the standard variable rate or just want to talk to a friendly expert about your options, please give our team a call. We are always available for a chat to get your finances in order.
If you would like to learn more about how Oportfolio can help with SVR mortgages, read our Standard Variable Rate Mortgage Case Study.