Average standard variable rate hits a 13-year high: what it means for homeowners

If your mortgage deal has ended and you’ve not moved onto a new product, you may have been transferred to your lender’s Standard Variable Rate (SVR). When SVRs rise, repayments can increase even if your circumstances haven’t changed.

With SVRs having reached their highest level in more than a decade (based on industry reporting), it can be a good time to understand how SVRs work and what alternatives may be worth considering.

Why SVRs tend to be higher than other mortgage deals

Many mortgage products are offered for a fixed period—commonly two, three or five years. Once that period ends, borrowers are typically moved onto the lender’s SVR.

An SVR is designed to be flexible for the lender. That flexibility usually comes at a cost to the borrower: SVRs are often less competitive than fixed-rate or tracker products, particularly when interest rates are rising.

The market context: SVRs can move with the wider interest rate environment

When inflation is high, the Bank of England may increase its base rate to help bring it under control. Mortgage pricing can then adjust across the market.

Industry reporting has highlighted that the average SVR can rise when base rate increases. For example, Moneyfacts reported that the average SVR in June 2022 reached 4.91%, the highest recorded since February 2009.

It’s also important to remember that SVRs vary by lender. Two borrowers with the same mortgage balance and term could be paying different SVR rates depending on who they borrowed from.

Even a small rate change can affect monthly payments

SVR is a variable rate, so the impact shows up in your monthly repayment amount. Over time, the difference between rates can become significant.

To illustrate the principle, consider a £250,000 repayment mortgage over 25 years. A change in the interest rate—particularly when moving from a more competitive product to an SVR—can increase the amount of interest you pay.

The exact figures depend on your mortgage type and remaining term, but the takeaway is consistent: rate differences matter, and they compound over the life of the mortgage.

Fixed vs variable/tracker: how the risk profile changes

If you’re currently on an SVR, you’re exposed to rate changes. That can be manageable when rates are falling, but it can be harder when rates are rising.

Fixed-rate mortgages

A fixed-rate mortgage sets your interest rate for a defined period (for example, two or five years). That can help with budgeting because your rate doesn’t change during the fixed term.

However, fixed rates can be higher initially than some variable alternatives, and you may lose out if rates fall and you’re still locked in.

Tracker and other variable options

Tracker mortgages move in line with a reference rate (often the Bank of England base rate) plus a margin. Other variable-rate mortgages can also change over time.

In a rising-rate environment, these products can lead to higher repayments as the rate moves up. The key point is that the direction of travel matters, but it cannot be guaranteed.

What else to consider beyond the headline rate

When your current deal ends, it’s easy to focus only on the interest rate. In practice, the best choice depends on a wider set of features:

• Overpayment flexibility: Some deals allow overpayments with fewer restrictions, which can help reduce interest costs.
• Upfront fees and product charges: A lower rate can be offset by higher fees, so it’s worth looking at the overall cost.
• Portability: If you plan to move, portability can affect whether you can take the mortgage with you.
• Your time horizon: If you expect to move or remortgage soon, the length of the deal period can be especially relevant.
• Affordability under different rate scenarios: Even if you’re comfortable now, it helps to consider how repayments could look if rates rise further.

Why getting a fresh look can be valuable

An SVR may offer convenience and flexibility, but it can also mean you’re paying a rate that is no longer aligned with current mortgage pricing. When the market shifts, borrowers who don’t review their options can end up paying more than necessary.

A structured comparison of available mortgage products—taking into account your current balance, remaining term, and priorities—can help you understand where you stand and what trade-offs you’d be making.

This article is for general information only and does not constitute advice. Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.