Many Borrowers Stuck on Standard Variable Rates

Many homeowners who are coming to the end of their mortgage terms are stuck on high interest standard variable rates (SVRs). They could end up paying well over the odds unless they take action to get off that expensive rate.

Some poor borrowers are paying a huge 8.19% interest. The average for people stuck on SVRs is a £40,000 mortgage, and this would cost a highly expensive £809 on a repayment mortgage with five years to go.

The advice is strongly to move away from an SVR if you possibly can. With any mortgage of greater than £25,000 you are likely to make some sort of a saving when switching away from an SVR, even when taking into account the expense that goes with remortgages. If your remaining mortgage is less than £25,000 then you may not qualify for a new mortgage as many lenders have a restriction of £25,000 as a minimum home loan.

The lenders with the highest SVRs include Birmingham Midshires and The Mortgage Business (TMB), which are both part of the Halifax, with a rate of 8.19%. Bank of Scotland has a rate of 8.1%, RBS/NatWest has 7.94% and Abbey’s rate is 7.84%. Alliance & Leicester and Woolwich both charge 7.89%.

TMB, BoS, Intelligent Finance (whose rate is 7.35%) and Standard Life Bank (7.31%) have all put their SVR up by more than the base rate increases since May. ING has the lowest current SVR by some distance at 5.99%. Behind them are First Direct with 6.75% and First Active at 6.85%.

Cheaper rates can be found at Building Societies, with Nationwide charging 7.24% and Britannia’s SVR is 7.45%.

Finding a good deal can dramatically reduce payments for people, yet there are 2.5 million on SVRs. Most mortgages revert to the lender’s SVR after a period of discount. Changing from an expensive rate could easily save someone £430 a year.

There is the problem of fees when switching mortgages, but there are fee-free brokers. London & Country (L&C) is one. Despite the millions of people on SVRs homeowners have become more knowledgeable in recent years. By the end of 2006, 21% of the 11.7m UK mortgage holders were on an SVR. Back in 1999 the figure was a much higher 58%, according to figures from research firm CACI.

Rob Clifford, head of broker Mortgageforce, says: “If you switch, don't just look at the initial rate. If your deal reverts to another SVR, you may not be able to get out if your debt is small, so check the lender's SVR and its history. There is no point going to one that tends to up its rate by more than Bank of England base rate.”

When switching, you need to avoid deals that have high arrangement fees attached and look for those with free legal and valuation costs.

When leaving your current lender be aware that you will also have to pay an exit fee. According to L&C deal the best deal to consider includes the ING variable rate, at 5.99% with no arrangement fee.

Tom Smith
20th September 2007

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