Standard Variable Rate

A standard variable rate is the base interest rate a lender will charge for a mortgage. Only someone with the highest possible credit rating and an excellent employment history will qualify for the standard variable rate. All other borrowers will have a rate that is some percentage higher than the standard variable rate.

Standard Variable Rate and the Bank of England

The Bank of England sets a base lending rate that is the lowest amount it will charge to banks that wish to borrow money. The standard variable rate is based on this base lending rate. The Bank of England determines how much the base lending rate will be on a monthly basis at regular meetings of the monetary policy committee (MPC).

When the MPC increases the base rate, lenders do so too. Lenders typically increase their standard variable rates quickly after a Bank of England increase. If they wait too long, they could lose money. However, when the MPC decides to lower rates, the lenders will do so too, but they typically wait a little while to make the change.

Standard Variable Rate and Mainstream Lenders

The rate you are charged on your mortgage will be more than the base rate charged by the Bank of England. The profit your lender makes is the difference between these two rates. Banks and building societies usually charge a standard variable rate that is 2% more than the Bank of England’s base rate.

However, when you are shopping for a mortgage, you must take some time to shop around. Some lenders will try to increase their profits by charging more than 2% over the base lending rate. Others will temporarily lower their profit margin in an attempt to draw more customers.

 

Standard Variable Rate and Your Credit Score

While most lenders have a standard variable rate that is 2% higher than the Bank of England’s base lending rate, you may not receive this rate. The interest rate you are charged is based on several factors. The most important factor is your credit score.

If your credit score is good, you will pay a rate that is close to or equal to the standard variable rate. However, if you have a poor credit history, lenders will view you as a bad risk and will charge you more than the standard variable rate. If you need a mortgage that has a standard variable rate, you need to take the time to improve your credit rating before applying.