Standard variable rate mortgages - how do they work?
Lenders standard variable rate mortgages have increased in popularity since the UK credit crunch. At this time the Bank of England cut the base rate to an historic low and over time mortgage rates followed suit.
The once crucial pursuit of regularly reviewing rates to switch to the cheapest offer, became no more as home-owners opted to revert to lenders cheap standard variable rate mortgages.
Lenders SVRs offered a good deal for around 3 years until mortgage-holders were informed that rates were to rise.
Lenders standard variable mortgages are a product which offers borrowers a lender's default rate which has no limited term or discounts attached.
Unlike a tracker which is pegged to the base rate, SVRs are a certain percentage above a rate arbitrarily chosen by the lender, who then may lower or as happened on May 01, raise its SVR at any time.
When the BoE base rate increases at some point in the future, it is believed that lenders will then increase their rates by far more than any increase made by the Bank of England.
Proposed EU changes include a proposal for all SVRs to be linked to a reference rate such as the base rate. This would prevent mortgage lenders from increasing their standard variable rate mortgages without justification, which is good news for home-owners.
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