Interest rates
Variable Rate Mortgages
A variable rate mortgage is one that reacts to changes
in the Bank of England base rate, or some other index that
is used as a benchmark. As such, the majority of all interest
rates can be broadly classed as variable rate mortgages.
However, when people talk about variable rate mortgages,
most are referring to products that charge a particular
lender's Standard Variable Rate (SVR) of interest.
The SVR is the rate of interest upon which most other products
on offer from a particular lender are based. More often
than not, a lender's SVR is itself linked to the Bank of
England base rate, though it is usually set at a level of
the base rate plus a certain number of percentage points.
When the base rate changes, the lender reacts by making
a corresponding increase or decrease to its own SVR, though
not all lenders will alter their SVR immediately every time
the base rate changes, or necessarily by exactly the same
amount.
Certain mortgages will require the borrower to pay the
lender's SVR on the full balance of a mortgage from the
outset. Others will revert to the SVR on completion of the
introductory fixed, discounted, or other form of offer period.
Advantages
SVR mortgages are more widely available than any other
type of rate. Borrowers looking for adverse credit, buy
to let, let to buy, self-build, 100%, cashback or self-certification
mortgages may find that they do not meet the lending criteria
that would enable them to take out some of the more competitive
offers available on the market. The sheer volume of mainstream
and specialist lenders offering SVR products means that
they are more likely to be able to find this type of mortgage.
SVR mortgages usually offer virtually unrestricted movement,
particularly when a customer is paying the SVR having previously
been on some form of introductory offer. Most customers
of this type will be able to move to another mortgage product
or a different lender without fear of being hit with redemption
penalties. However, this is not always the case, as some
products have redemption penalties that last beyond the
offer period or that are payable for an extended period
of time due to particularly relaxed lending criteria, cashback
deals, or some other reason.
Disadvantages
Although this type of mortgage is the most common type
of rate in this country, it is certainly not a type of product
that is suitable for everyone to take out at the start of
a mortgage term. Unless it is associated with a flexible
mortgage, or some other form of specialist product, most
borrowers will find that fixed or discounted deals usually
offer far more attractive rates. Furthermore, SVR mortgages
offer unpredictable levels of monthly repayments, which
do not allow new homeowners to accurately budget for their
repayments.
However, if you eventually want to pay your mortgage off
and avoid remortgaging forever, it is inevitable that you
are going to have to content yourself with paying a lender's
SVR at some point in the future. So if you are looking for
a long-term deal, it is important to make sure that your
lender has a good track record of offering a competitive
Standard Variable Rate.
