Five Questions About: Standard variable rate

By Clare Francis,
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The Independent Online

What is standard variable rate?

The standard variable rate (SVR) is the mortgage rate usually charged when the fixed or discounted period on your mortgage deal ends. It is set by lenders, with changes at their discretion.

When do SVRs change?

Lenders tend to alter their SVRs after changes in the Bank of England base rate. There is no guarantee that the SVR will move in line, because it is not directly tied to the base rate. When the base rate fell from 5.0% to 0.5% between October 2008 and March 2009, Lloyds TSB/Cheltenham & Gloucester was the only one of the top 20 lenders to reduce its SVR by the full 4.5 percentage points. When it starts to rise again – which many economists believe will happen this year – some banks and building societies may choose to increase their SVR by more than any change in the base rate.

I've heard Halifax is giving money back to some borrowers on SVR. Can you explain?

While Halifax's SVR isn't directly linked to bank rate, customers who took out one of its mortgages between 20 September 2004 and 16 September 2007 had a clause in their terms and conditions that the SVR would be no more than two percentage points higher than the Bank's base rate. However, this cap was increased to 3% above bank rate in October 2008.

Halifax, now part of Lloyds Banking Group, announced this week that it would pay £500m to 300,000 borrowers who were affected by this and still had their mortgages with the bank in 2009.Are many people paying their lender's SVR?

Yes, more than three million borrowers are on SVR. Many chose not to remortgage when their old fixed or discounted rate ended because the SVR was lower than rates available on new mortgages.

What should borrowers on SVR do?

The risk of remaining on SVR is that it could increase by more than any changes in base rate. Anyone paying SVR should consider remortgaging now before rates start rising. One option is to fix and protect yourself from higher interest rates. Or opt for a tracker mortgage: these are variable but directly linked to base rate so although your mortgage rate will rise if interest rates go up it will mirror base-rate changes.

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