Avoiding Bog-Standard Variable Rates; Remortgaging after Introductory Deals Expire

Many of the most attractive mortgage packages only last a short amount of time; often two, three or five years, after which homeowners are typically moved to their lender’s standard variable rate (SVR) unless you remortgage onto another deal.

How do SVRs work?

SVRs are a type of variable-rate mortgage where payments can go up or down in accordance to any changes in interest rates.  However, these changes are not determined by the Bank of England Base Rate, as you find with tracker mortgages, but instead can be raised or lowered at any time by the mortgage lender.  For example, if the Bank of England Base Rate went up by 1%, your lender could do one of three things:

  • Increase the SVR – either by any amount less than 1%, 1% exactly, or increase greater than 1%
  • Not increase the SVR
  • Decrease the SVR - although this is unlikely!

This can mean that SVRs typically have much higher rates than fixed, discount and tracker mortgages, leaving homeowners with larger monthly payments.

Is Switching from an SVR to an alternative Deal a Good Idea?

  • SVR rates are typically higher than mortgage deals set over a period of time
  • In October 2018, a national survey conducted by the consumer group Which? found that one in four mortgage borrowers were on their lender’s SVR and could be paying up to £4,000 per year more than if they moved to a better deal.  FT Adviser reports the study found that borrowers with an average priced property could be forking out as much as £347 per month more, whilst homeowners in London could be paying as much as £727 per month, equating to £8,700 per year
  • Fluctuating rates of an SVR can make budgeting monthly outgoings more difficult than a steady, fixed rate mortgage. If mortgage payments increase by too much, it could become challenging to keep up with repayments
  • If a variable rate mortgage suits your financial circumstances better than a fixed rate, you may want to look at available tracker deals, as SVRs are not typically the most competitive rates on the market
  • SVR mortgages do not usually feature a lock-in period or other restrictions/ fees that other fixed term mortgages might carry. This may mean you can switch to a new, better deal without paying early repayment charges

Are there any Advantages to SVRs?

  • If interest rates go down, you may see a decrease in your mortgage repayments too
  • SVRs often carry lower arrangement fees than tracker or fixed rate options. On occasion, there may be no arrangement fees at all
  • You can overpay or clear your mortgage entirely without paying penalties
  • It may be preferable to choose to stay on SVR for short term flexibility, e.g. if you are planning to move to a new house, however, SVRs are rarely a good long-term option

Mortgage Apathy

In October 2018, The Scotsman reported a, “clear level of apathy” over mortgage deals as detailed by Which? researchers.  41% of homeowners on SVR mortgages explained they would be unlikely to move to a cheaper deal even if they heard about one, with 22% claiming it was not worth the effort, and 15% reporting they had not thought about it.  Mortgage Advice Services recommends being pro-active with your finances and shaking off any mortgage apathy; it could cost you £1000s!

If your initial deal is due to end soon or you have already been moved to your lender’s SVR, call Mortgage Advice Services on 01332 257 087 for friendly, impartial advice on what remortgage deals are available to suit your personal circumstances.  Let us do the searching for you.

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