Standard Variable Rate Mortgage

At some point over the last year, you’ve probably been listening to the news and heard a large fuss over the Bank of England’s interest rates. Like most people, you’ve probably brushed it under the carpet and shrugged mildly.

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What difference is one or two percent? Well as far as mortgages are concerned, the Standard Variable Rate can be very important indeed.

The Bank of England takes the liberty of setting a Basic Interest Rate every so often throughout the year. This is what we’re referring to when we talk about the rise or fall of interest rates. But a Standard Variable Rate differs in that the mortgage dealer will add an extra burden on to the current basic rates.

For example, they may choose to have a variable rate of 2%. This simply means that your mortgage interest rates will follow the pattern of the Bank of England’s current figures, plus the additional 2%.

If the Bank of England is currently suggesting a basic rate of 4.5%, and you have a mortgage where the standard variable rate is 1.5% above the base rate, that’s a total of 6% interest that you can look forward to paying.

The reason why it’s called a variable rate is because the Bank of England can (and will) alter its basic interest rates. If they raise it by half a percent to 5%, you can expect to be paying 6.5% interest. The mortgage company is essentially making sure that it gets its cut of interest, no matter what happens with the economy.

So what are the benefits and disadvantages of moving for a Standard Variable Rate package? You’ve probably guessed it by now. We can fuss over the calculations all we like, but we can’t predict what the Bank of England is going to do with its basic rates. Even the most financially astute businessman will have trouble predicting that far in to the future, so it would be unwise to budget for 7% interest rates if a slight rise is going to throw you on to the financial scrapheap.

At the same time, you could get the rub of the green and enjoy an extended period of lowered interest rates. Wouldn’t it be nice to sign on the dotted line expecting to pay 7%, only to find that the basic rates have been reduced and you’re better off than you imagined?

Yes, it’s a nice thought, but it’s not entirely intelligent to base your decisions on such assumptions. It’s rare that the Bank of England will make a move out of nowhere, but in mortgage terms, the difference between 1% and 2% can prove the deciding factor in whether dinner’s on the table at the end of the day. It’s a big difference.

Mortgage dealers will offer standard variable rates at their own digression. They don’t have to fall in line with the base rate, so you’re likely to find that fees will vary. Take a good look at the small print before committing to a low rate. And likewise, consider the worst case scenario if your mortgage interest levels are running close to your budget cap. They’re just as likely to rise as they are to fall or stay the same.

Compare the best standard variable rate mortgages by visiting our
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