Discounted Variable vs Tracker

Maka344

Our fixed term is coming to an end in January. We are moving house next year thus, require flexibility and no ERC. Our broker has found two products; a discounted variable with our existing lender (product switch) and a standard tracker with Leeds BS. Both products are very similar in percentages and fees. 

I do understand the difference between the two product types however, we never been on any form of tracker.

Do lenders typically reduce the SVR rates in-line with the BoE? 

housebuyer143

Sometimes discounts are a good deal but I don't like them because there is no rhyme or reason to SVR changes. They do not follow base rate so there is no guarantee that the rate goes down if base does and in reserve, no guarantee it will go up and by how much if it does. 

I have seen some lenders with SVRs over 10% and others at 6% and some that increase them by 0.5% one month even though base rate only went up 0.25%.

Personally I prefer a tracker because of the certainty of rate reductions and increases that can be monitored 

amnblog

Discounts, the rate is in the control of the Lender

Trackers, the rate is in control of the Bank of England

On either, make sure you can handle the heat if rates go running up again.

(some providers have the option to switch to a fixed rate if base rates get too hot)

Maka344

housebuyer143 said:

Sometimes discounts are a good deal but I don't like them because there is no rhyme or reason to SVR changes. They do not follow base rate so there is no guarantee that the rate goes down if base does and in reserve, no guarantee it will go up and by how much if it does. 

I have seen some lenders with SVRs over 10% and others at 6% and some that increase them by 0.5% one month even though base rate only went up 0.25%.

Personally I prefer a tracker because of the certainty of rate reductions and increases that can be monitored 

Thank you. That's very helpful. The question is, have SVR's been more stable (and in-line with BoE) recently? For example, Vernon state this on their website: Following the Bank of England (BoE) Base Rate change on 3rd August, the Society does not intend to increase the Standard Variable Rate (SVR) for borrowers. We will however be increasing savings rates from 1st September.

housebuyer143

Maka344 said:

housebuyer143 said:

Sometimes discounts are a good deal but I don't like them because there is no rhyme or reason to SVR changes. They do not follow base rate so there is no guarantee that the rate goes down if base does and in reserve, no guarantee it will go up and by how much if it does. 

I have seen some lenders with SVRs over 10% and others at 6% and some that increase them by 0.5% one month even though base rate only went up 0.25%.

Personally I prefer a tracker because of the certainty of rate reductions and increases that can be monitored 

Thank you. That's very helpful. The question is, have SVR's been more stable (and in-line with BoE) recently? For example, Vernon state this on their website: Following the Bank of England (BoE) Base Rate change on 3rd August, the Society does not intend to increase the Standard Variable Rate (SVR) for borrowers. We will however be increasing savings rates from 1st September.

No, I haven't found it particularly stable but it does depend on the lender. Some increase more in line with base rate, while others really don't 

Andreg

SVRs tend to be about 2% above base rate, but when base rates were very low (until 2021) SVR margins increased to nearly 4%.  Currently SVR margins are below 2%.  My guess is base rates and SVRs will not change much over the next year or two, but there's a risk that base rates will then start rising again, and if that happens I would expect SVRs to rise in line with base rate.

If we're lucky, inflation disappears miraculously, and base rate is sharply reduced, then SVRs will likely not reduce as much as base rate.