WHAT IS A STANDARD VARIABLE RATE (SVR)?

It is reckoned that almost a quarter of all homeowners, possibly as much as half, have at some point drifted onto what is known as a lenders Standard Variable Rate (SVR). But what is the SVR? Well, every mortgage taken out is time bound – this means it will expire at some point and the current terms, including the interest rate being charged, are no longer valid. At the end of that deal if a new one is not arranged then you move onto what is known as an SVR, and without having to do anything. Some people think that if their mortgage deal expires and they don’t have a new one in place they will lose their home, which of course isn’t the case, they simply migrate to the lenders SVR without even having to do anything, which for some is a big relief. But beware, moving onto a SVR will almost always mean paying more as the interest rate will be a couple of percent higher than any other rate the lender offers.

What is the likely financial impact of moving onto a SVR mortgage? 

Quite a large hit, with estimates putting the cost for many at just over £4,000 of additional interest costs per year. That’s a staggering additional amount to pay when you think about it, around £340 a month. That’s a lot more of enjoyment to be had spending that on items you want to have rather than interest.

What can be done if I’m on an SVR or my deal is close to expiring?

This is the easy part – remortgage. Remortgaging doesn’t mean taking on more debt, or an additional mortgage, it just means moving to a new deal and is the same as swapping say gas and/or electricity supplier, and it can often mean staying with the same provider but on another of their mortgage products. What’s more, some people think that as the monthly cost of an SVR is higher that they are paying their mortgage off more quickly, when in fact they are simply paying more interest.

Hardship, Covid & furlough, financial changes?

Don’t be scared to speak to someone if your financial situation has changed slightly, or even if you believe it has. Many people hit by Covid or other situations that affect their finance don’t want to speak about their mortgage for fear of the lender finding something out that negatively impacts them, but you’ve nothing to fear or lose as the very worst-case scenario is not being able to get a new mortgage deal and therefore having to move onto a SVR.