Lenders like to tempt property investors with a fixed rate mortgage deal. Whilst you may save money in the opening years of a contract, it is common for the deal to change to what is known as an SVR (Standard Variable Rate) mortgage after a certain period of time.
Understanding what an SVR mortgage entails, and how it can affect your financial plan may help you to save on your mortgage payments. Liquid Expat Mortgages have outlined this mortgage type below so that you can make informed investment choices.
Defining an SVR
Standard Variable Rates are not dictated by the Bank of England’s base rate. Unlike a Tracker mortgage, the price can be set by the lender – raised or dropped at any stage during your repayment schedule. An SVR mortgage typically takes over once a tracker or fixed-rate deal expires, typically two, three or five years after securing the initial mortgage deal.
It’s fair to say that SVRs are the industry’s preferred lending method. Although they are similar in nature to other mortgage types – tending to rise, for example, when the economy is doing well – a lender can manipulate the rate whenever they wish to. From a lender’s perspective an SVR is one of the most flexible mortgages. That’s why the vast majority of agreements will move to an SVR at some stage.
Weighing up the value
An expat SVR mortgage isn’t wholly good or bad: it depends on what the lender is offering, and whether your situation can make the most out of the current and future state of the UK property market.
Overall though, the pros and cons may be laid out like this…
- Advantages: An SVR mortgage can be quite cheap, depending on the lending partner’s competitive instincts. They may not rely on base interest rates, but SVRs are likely to rise or fall with the wider performance of the economy. If you are following such activity, it is possible to predict whether the percentages will creep up. What’s more, you may not face an Early Repayment Charge for paying back before you’re meant to.
- Disadvantages: An expat SVR mortgage can leave you with high monthly repayments that you weren’t expecting, and can be the most expensive deal in the long run. Rate changes can be seemingly random; the bank may or may not follow what other lenders are doing, and they are not obliged to pass on to you any Bank of England interest rate reductions.
Remortgaging can be the key to getting a better deal. Currently, the base rate is still low, making now an ideal time to shop around. It may be wise to look at other fixed-rate or tracker mortgages, negotiating with the same lender or a competitor, and beginning a new deal that will stay low for several years.
Liquid Expat Mortgages’ team of specialist consultants can help show you where savings can be made on your mortgage, upping the financial strength of your portfolio management. Whether you’re looking to remortgage or are yet to invest in UK property, try our broker services today.