The standard variable rate, or SVR, is the basic interest rate on which a mortgage lender bases all its mortgage deals.

These average about two percentage points above the Bank of England’s base lending rate.

So if the Bank’s base lending rate is 5.5 per cent, most mainstream mortgage lenders SVRs will be around 7.5 per cent.

 

But, provided you have a reasonable credit history, you should never actually pay this rate.

This is because lenders also offer a range of far cheaper fixed interest and discounted variable rate deals.

These can last anything from six months to the full mortgage term, which is traditionally 25 years.

However the most popular deals tend to last between two and five years.

Why standard variable rates are a waste of money

Imagine you wanted a £100,000 repayment mortgage

If a lender offered you a standard variable rate of 7.5 per cent, assuming this didn’t change, over five years the repayments would total44,339.

But you would be crazy to accept, because that same lender might also have several far cheaper fixed and discount deals.

If, instead, you took a five-year fix at 5.5 per cent, the repayments would be £36,844 saving you a massive £7,495!

 

Don’t get tied into a standard variable rate.

When you’re shopping around for a good value fixed-rate or discount deal, always check the early redemption penalty.

Avoid deals with an extended redemption penalty, which ties you into paying the lender’s standard variable rate beyond the fixed or discounted period as this could more than cancel out the savings you make.

For more on early redemption penalties, read Early Redemption Penalties Explained