Mortgages: A good rate isn't standard

Saying au revoir to their SVR is usually one of the quickest ways for borrowers to cut costs.

The standard variable rate is the "central" rate of lending used by each bank or building society and is affected, although not dictated, by the Bank of England base rate. Compared with other deals offered on mortgages, such as trackers, discounts and fixes, it is notoriously expensive.

Many lenders, including the Halifax, Abbey, Woolwich and Coventry building society, last week raised their SVR to reflect January's shock quarter-point rise in the base rate to 5.25 per cent.

"Many SVRs are now above 7 per cent and yet you can get a fixed rate for around 5 per cent and a tracker for even less," says Melanie Bien of broker Savills Private Finance.

Abbey's SVR, for example, rose to 7.34 per cent on 1 February, while the Woolwich's ticked up to 7.39 per cent. Specialist lenders have raised their SVRs to even higher levels.

If the base rate is hiked by another 0.25 per cent this week, as some commentators are predicting, homeowners will have to brace themselves for further increases. As many as 30 per cent of home loans are on the SVR, says Darren Cook of financial analyst Moneyfacts.

"Lenders will not disclose actual statistics," he says. "This would amount to voluntarily stating that a certain amount of borrowers are paying over the odds for their mortgage. Really, lenders should be on the phone to these borrowers directing them to a better deal."

But in some cases, there may be a good reason to stick with your SVR.

"If you are moving home in the next few months, it might not make sense to switch to a cheaper deal if it also comes with tie-ins and early repayment charges," warns Ray Boulger of broker John Charcol.

This is because you may find the terms of your new mortgage deal don't allow you to increase the amount borrowed. If you need extra finance to move home, you may have to break the deal, and pay a penalty to do so.

When on an SVR, you will not be tied into a deal, so hanging in there for a few more months at least gives you the flexibility to redeem the loan penalty-free.

You may also be better off sticking with the SVR if you have a very small mortgage balance, usually around £30,000 or less. This is because the monthly saving may not justify the cost of switching.

"An average arrangement fee now costs around £600," says Louise Cuming of the price-comparison service Moneysupermarket. "Then you might have a valuation and legal fees to pay, as well as an exit fee from your existing lender. The average exit fee is £200 but Alliance and Leicester charges £290.

"If switching saves you £10 a month on a small mortgage, the fees probably won't make it worth it."

However, there are deals available where the borrower doesn't have to fork out a penny if they want to leave. For those with a deposit of at least 20 per cent of their property value, the Woolwich has a lifetime tracker payable at base rate plus 0.39 per cent, giving a current pay rate of 5.64 per cent. This is 1.75 per cent cheaper than paying the same lender's SVR, equivalent to a monthly saving of £219 on a 25-year £200,000 repayment mortgage.

Ms Bien says: "It used to be the case that you could justify being on the SVR if it was only for a short while. Perhaps you were planning to move or had just a small mortgage left. But now there are a number of penalty-free trackers that you can get out of at any time."

When switching to a tracker loan, make sure you choose one that is linked to the base rate rather than an SVR, as lenders are within their rights to increase SVRs by more than the base rate.

Tracey and Brian Lutman from Bexhill-on-Sea in East Sussex have been paying Nationwide's Base Mortgage Rate (the lender's SVR) since their fixed-rate deal expired a year ago.

The repayments on their three-bed bungalow went up on 1 February when the building society increased its BMR to 6.74 per cent, but the couple intend to stick with their current deal.

Mrs Lutman, 48, a catering manager for the NHS, says: "We only have £14,000 left on the mortgage, which we're scheduled to clear in one year and seven months, so it's not worth the potential costs and hassle of switching.

"Nationwide's BMR is comparatively very low anyway and we have been more than happy with the lender. We're aware our payments will increase but they were only £80 a month anyway, so it's not going to make much difference. It's all swings and roundabouts."

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Recruitment Genius: Online Customer Service Administrator

    £16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

    Recruitment Genius: Digital Marketing Executive

    £18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

    Day In a Page

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before