Standard Variable Rate Mortgage
Mortgage options
A standard variable rate mortgage is the most common type of mortgage loan.
This type of mortgage loan has an interest rate that fluctuates and will rise and fall broadly inline with the interests rates set by the Bank of England and inline with the economy as a whole.
Standard Variable Rate mortgages interest will vary throughout the term of your mortgage and will mean that when general interest’s rates are high your mortgage payments increase and when the interest rates reduce then so does your monthly mortgage payments.
Mortgage lenders will alter the interest rate on their standard variable rate they charge to your account when the general interest rates change, this will vary according to the lender as some lenders will change their rates immediately and others will wait till the end of their financial year.
Standard Variable rate mortgage lenders will offer a method to ‘level’ out these fluctuations in the interest changes by offering you pay the same repayment and making adjustments once a year. This makes it easier to plan and budget your monthly mortgage payments but can mean you will have a sharp increase once a year if the general interest rates have increased dramatically. Usually this is not always the case as interest rates tend to increase then reduce to compensate and can make very little difference to your standard variable rate mortgage account.
The health of the general economy will have the affect of influencing your mortgage interest rate and this is never easy to predict but your mortgage advisor will be the best person to seek advice from.
Every Mortgage Lender in the UK will normally offer a Standard Variable Rate SVR mortgage and each mortgage lender will have set its own rate of interest. The rate of interest set by the mortgage lender will be based on the Bank of England base lending rate which is decided monthly by the Bank in accordance with their monetary policy.
When the bank of England increases the rate the mortgage lenders will be quick to increase their own rate of interest on standard variable rate clients usually by the same amount. So if the Bank of England increases the base lending rate by .5% then the mortgage lenders will do the same.
However, when the Bank of England reduces the rate of interest the mortgage lenders are not always so quick to reduce their rates. This doesn't mean that mortgage lenders set their rates the same as the Base Lending Rate, if for example the Base Lending Rate is 5.5% then mortgage lenders will usually set their rates at 7.5%. This will depend upon several factors and is usually offered by main stream lenders who are lending to people with reasonable credit ratings. They may set their rate higher if they are offering a mortgage to a client with a poor credit rating and they may also reduce the rate if they want to temporarily increase their market share.
You should always seek advice from your independent mortgage advisor before committing your self to your variable rate mortgage
