The cost of having a standard variable rate (SVR) mortgage

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When you take out a mortgage it will normally be a fixed rate, tracker or discount mortgage with a fixed term of two or five years. 

If you don’t remortgage when this term comes to an end, you’ll usually be switched on to your lender’s standard variable rate (SVR) mortgage. 

SVR mortgages are often much more expensive than the original deals. Lenders set their own SVRs, which are loosely based on the Bank of England base rate but can go up or down at any time. 

Sometimes customers may not even know they’ve come to the end of their mortgage deal and have been moved on to an SVR, which means they could be paying more without realising.

Some lenders move customers onto follow-on rates instead of SVR mortgages at the end of their initial term. While those lenders with SVR mortgages will generally apply the same standard variable rate to all customers, follow-on rates often vary according to the particular mortgage product you have, although they are still likely to be more expensive than rates during the initial term.

Analysis by MoneySuperMarket and Fluent Mortgages indicates that over one in 10 mortgage holders in the UK are on SVR mortgages when they apply to remortgage a property (11.97%)1

With almost 11 million outstanding mortgages in the UK as of May 20202, this suggests that over 1.3 million people in the UK may have lapsed onto these more expensive tariffs. 

Amount of mortgage holders who have lapsed onto SVR

According to our research, mortgage holders still within their initial fixed rate, tracker, or discount period could save an average of £28.36 a month, or £340 a year, by moving to a better deal at the end of their term.1

In comparison, mortgage holders on an SVR could save an average of £133.46 a month, or £1,602 a year – 371% (£1262) more than those still within their initial period.1

This significant difference in savings highlights just how much more expensive SVR mortgages can be.

And given that there may be 1.3 million mortgage holders on SVRs, savings across the UK could total £175 million per month if these customers were to switch to a more favourable rate.3

Potential monthly savings

Despite this, one in seven (15%) MoneySuperMarket remortgage enquirers are not aware that mortgage holders are automatically moved on to a more expensive SVR once their initial deal ends.4

And first time remortgagers are more than twice as likely to be unaware of this compared to those who have remortgaged before (16% and 7% respectively).

This suggests a significant proportion of mortgage holders may be switched on to an SVR mortgage without understanding the financial implications – or without even realising.

Regardless of where you live, it is important to make sure you’re not paying over the odds for your mortgage.

Looking at remortgage applications across the UK, we can see that the proportion of mortgage holders on SVRs varies from one area to another.

Data indicates that one in six (16%) mortgage holders in the south-east of England were on an SVR at the time of application, and over one in ten (11%) in the east of England.

In comparison, this was true for only one in 20 (5%) and one in 25 (4%) mortgage holders in the West Midlands and Wales, respectively.

National averages

If you discover that you have lapsed on to an SVR mortgage or a follow-on rate, you should probably think about remortgaging. It’s generally a straightforward process that could save you a lot of money.

As well as the type of mortgage, there are several other factors to keep an eye out for when you do this.

Mortgage term

The longer the mortgage term you take out, the lower your repayments will be. However, by negotiating a shorter term, you can pay off the debt quicker and pay less interest overall.

Deal length

It’s important to be clear how long you are tied into a mortgage deal as ending one early will usually mean paying a hefty charge. You can also arrange your new deal three months in advance, so that you switch over at the end of your term - ensuring you are always on the best deal.

Repayment or interest-only

There are pros and cons to each option: a repayment deal means you’re actively paying off the cost of the mortgage loan; an interest-only mortgage means your payments are smaller but you only pay off the interest – not the initial loan. So at the end of the term, you’ll still have to pay off the mortgage in full. That’s why most lenders require you to have a separate repayment plan, such as an ISA investment, in place to build up the finances to pay off the mortgage at the end of the term.

Remortgage

Regardless of whether you are on an SVR or not, remortgaging can often help you to get a better mortgage deal. 

You can compare deals and find the best one for you by comparing the latest remortgage deals available.

Find a remortgage deal

Sources

  1. Fluent Mortgages data, 1st February 2019 to 31st January 2020
  2. Outstanding mortgages data via UK Finance: Mortgage Arrears and Possession Update, Quarter 1 2020: https://www.ukfinance.org.uk/
  3. Number of outstanding SVR mortgages (1,313,109) multiplied by the average monthly saving for those on SVR (£133.46) equals 175,247,527
  4. Survey of 2,640 MoneySuperMarket remortgage enquirers between 14th and 21st May 2020 
  5. Survey of 2,536 MoneySuperMarket remortgage enquirers between 21st May and 1st June 2020

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