Craig Skelton from Renew my Mortgage explains SVRs.
Mortgage brokers do like their jargon and their abbreviations, and SVR is one that comes up regularly. It stands for a standard variable rate, and every lender has their own SVR.
If you’re a mortgage client and you take out a two-year fixed deal or a five-year fixed mortgage, at the end of that initial rate period you will move onto this standard variable rate or SVR.
You will be notified of this when you first take out the original mortgage, on your Key Facts document. That explains what your interest rate is, what your monthly payments are and what the SVR is . You probably won’t pay much attention to it because you’ve got a lot of things going on when you get the mortgage for the first time.
Even though you will have been notified of it two or five years ago, it will probably have changed over that period of time.
Generally speaking it’s not a good thing to be on the SVR. There tend to be better products out there for you. Because the SVR is set by the lender it’s not the most competitive. It’s just a standard rate. There’s no enticement with a great product or good interest rate to keep you as a customer or attract new customers. It’s just their bog standard rate.
People do stay on SVRs for various reasons. If you think that interest rates are particularly high and you don’t want to fix yourself into a new deal, then when your current deal ends you might move to the SVR. As long as you can afford the SVR payments, you might choose to tolerate that variable rate right now, play the market a little bit and wait for rates to come down again. That is one advantage of being on the SVR.
Another reason might be bad credit. If you took out the mortgage two years ago and at that time you had defaults or CCJs, you will pay more for that loan. If the CCJ is due to come off your credit file in a couple of months’ time, your broker might advise you to take a hit with the SVR and then look for a new deal once the credit issue is no longer on your credit file. The chances are you’ll get a better deal on a standard mortgage than you would with a bad credit mortgage.
That depends on the lender. There’s no set time when the lenders will change their SVR. It depends on market conditions and whether the lenders feel that they want to increase or decrease it. It can change very often, it can not change for two or three years… it just depends on what’s going on in the marketplace.
Generally not. Just to clarify, if you’ve got a two-year deal or a five-year fixed rate and you want to leave that deal before the end of that initial period, you’ll face an early repayment charge. But when you move on to the standard variable rate, you’re not tied in. You’re free to move from one lender to the next or get a new deal from your existing lender.
It’s all down to the individual and your specific circumstances. Generally, I would start to look at the remortgage process at least six months before your current deal ends. If your deal ends on 31 December, I would start to look towards the end of June. That is normally the right time to get your new deal ready and locked in.
You don’t want to be panic-buying. Most mortgage offers last up to six months, so you can find a lender and get a new mortgage offer all ready to put in place once your existing deal ends. It just gives you peace of mind. You’re not going to be in a panic situation. Reach out to your broker and we’ll get it all in place.
In terms of when you can remortgage, some clients recently have remortgaged early. They’ve had an early repayment charge, but it was very minimal. They felt it was worth it, because they wanted to get a new rate locked in before the next interest rate rise. So you can do it slightly earlier. But normally we would start the process six months before your deal ends.
The big thing is to make sure that you don’t take the easy option. Your existing mortgage lender will write out to you around three months from the end of your deal to tell you it is finishing. They will offer to switch you from one deal to another.
Now, that’s not always the best product on the market for you at that time. It might seem the easiest way of doing it – just switching from one deal to the other, there’s not much hassle with that.
But if it’s not a good interest rate then that can cost you money over the next two years or five years. You should compare your existing lender’s offer to the rest of the market. That’s where Renew My Mortgage comes in. We will compare that offer with the rest of the market and tell you what’s most suitable for you. If we find a better deal we will just transfer it for you. There’s no fee, and you now know you’ve got the most appropriate deal on the market.