Why is our lender's SVR so much higher than its fixed rate?
Q We are looking to remortgage when our fixed rate expires in a couple of months. Looking at what our current lender is offering, we could go for another fixed rate of 2.99% for two years. But our lender's standard variable rate (SVR) is 4.99%, so I don't understand why would they encourage us to fix at a lower rate than that if everyone thinks the base rate is going to rise. I'm confused. NS
A The fixed-rate deal available from your lender isn't affected by changes in the base rate. Just as you can borrow at a fixed rate, so your lender can. Mortgage lenders make their money by borrowing money at one interest rate and lending it on at another higher rate. So, for example, your lender could have managed to borrow at a fixed rate of 1.99% for two years and is making money by charging you 2.99%. Your lender is happy because it will be getting more in interest than it is paying out, and, in theory, you're happy because you're getting a better rate than the SVR and are unaffected by changes in base rate for two years.
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