Money blog: Big banks announce one interest rate hike after another – and “they’re not small”

Essentially, it is usually a standard variable interest rate that you switch to when your fixed-rate mortgage term expires.

The interest rate – and therefore your mortgage payments – can rise and fall at any time.

What you need to know

Most people entering into new mortgage agreements choose to lock in the interest rate for two years, five years or longer to get a good deal or to be sure the payment doesn’t suddenly change from month to month.

However, when this fixed term expires, most lenders will automatically pay borrowers a standard variable rate (SVR) until a new deal is agreed.

Unlike a tracker mortgage, the SVR is not directly linked to the Bank of England base rate, meaning that while it can be influenced by it, it does not necessarily change in parallel.

The big problem with an SVR is that it is generally more expensive than a landline.

According to the latest data from Moneyfacts, the average two-year interest rate for fixed-rate mortgages was 5.39% as of November 1, while it was 5.09% for five-year deals. Meanwhile, the average SVR was 7.95%.

Are there any advantages?

One of the main advantages of a standard variable rate is that you can overpay your mortgage or switch to a fixed rate without incurring any fees or costs.

The mortgage may also have lower processing fees than a fixed rate or tracker mortgage.

And if potential fluctuations don’t worry you too much, non-compliance means payments could go down if the lender lowers the SVR.

How to avoid an SVR mortgage

If your initial mortgage term is coming to an end and you don’t want to switch to the standard variable rate, refinancing with your current lender or another lender is the best option to get a better deal.

This could secure you a lower interest rate – but refinancing could involve new fees and costs. So consider whether this will definitely save you money in the long run.

Read more in our Basically series…