Money Insider: SVR hike may mean time for a mortgage move

 

As expected, the decision by Santander to increase its standard variable mortgage rate (SVR) has received short shrift from the media, but claims and accusations aside, the move should act as a wake-up call for other borrowers currently sitting on SVR.

The 300,000 or so customers of the UK arm of the Spanish banking giant will be unhappy to learn that their monthly mortgage repayments will take a bigger slice of their disposable income from October, but for some at least there will be the option of moving to a cheaper fixed or tracker option elsewhere.

Santander is increasing its SVR from 4.24 per cent to 4.74 per cent, which is just shy of the market average of 4.77 per cent.

This isn't the first instance of SVR increases this year, with Halifax, Co-operative Bank and Clydesdale/Yorkshire Banks already increasing rates in May, and I fear that with increasing capital requirements, higher regulatory costs and pressure on profit margins, Santander won't be the last lender to hike costs before 2012 is out.

Standard variable rates vary widely between mortgage lenders, with ING coming in at just 3.5 per cent and First Direct 3.69 per cent while at the other end of the scale Kent Reliance and Nottingham Building Society charge a much steeper 6.08 per cent and 6.14 per cent respectively.

The recent spate of SVR increases is a stark reminder to consumers that unlike a tracker product, the interest rate can move up or down even if there is no change in base rate.

Many commentators suggest simply switching your mortgage to a more appropriate and cheaper product. However it's not as black and white as that.

There are a number of factors to bear in mind with SVRs and it's not a case that one solution fits all for borrowers who are affected by these rate hikes.

For example, customers with a small mortgage balance and/or just a few years remaining on the term of their home loan may be just as well staying put due to the cost of switching.

Product fees and in some cases valuation and legal charges associated with a new mortgage mean that it's not always financially viable to look elsewhere.

Another thing to take into account is that the SVR is the same whatever your loan-to-value may be.

If you only have a 10 per cent deposit or less then the SVR you are currently being charged is likely to be cheaper than the latest best-buy fixed or discounted deals, whereas if you have 40 per cent equity you should be able to remortgage to a better option.

The ability to take your mortgage custom elsewhere will also depend on the state of your credit status. If your credit rating has deteriorated during the time you've had your current mortgage you may find it difficult to transfer to a new home loan elsewhere due to the strict lending criteria enforced by lenders these days.

The cost impact for someone with £50,000 on a Santander SVR mortgage with 20 years to run will be an extra £13.50 per month, but by switching to a five-year, fixed rate of 3.59 per cent and no fee with Post Office (assuming a 25 per cent deposit) you could cut your existing monthly payment from £309.35 to £292.30, saving £17 per month, or over £30 per month when compared with the higher SVR payments which kick in from October.

As I mentioned earlier, the cost savings are more substantial for those with larger mortgages. If you're borrowing £150,000, Santander's 0.5 per cent SVR hike will cost you an extra £40.47 per month from October

However, assuming a 25 per cent deposit and 20 years still to run, transferring to a tracker mortgage at 3.69 per cent and no fee from First Direct could save you £43.39 per month on your existing payments and £83.86 per month when compared with the increased 4.74 per cent Santander SVR.

The financial benefit will depend on the size of your mortgage balance and the term remaining, but you'll also need to take into account the product fees on a new mortgage as in some cases these can be well into four figures and wipe out most of the potential savings.

If you're unsure of the best course of action for your own situation speak to an independent mortgage broker and let them do the number crunching and help you find the most cost-effective options for your circumstances.

Andrew Hagger is an independent personal finance analyst from Moneycomms.co.uk – moneycomms@gmail.com

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Claims Administrator

    £16000 - £18000 per annum: Recruitment Genius: A position has arisen within th...

    Ashdown Group: Development Manager - Rickmansworth - £55k +15% bonus

    £50000 - £63000 per annum + excellent benefits : Ashdown Group: IT Manager / D...

    Recruitment Genius: Security Officer

    £16500 per annum: Recruitment Genius: Applicants must hold a valid SIA Door Su...

    Ashdown Group: Business Analyst - City, London

    £50000 per annum: Ashdown Group: Business Analyst - Financial Services - The C...

    Day In a Page

    The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

    The saffron censorship that governs India

    Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
    Prince Charles' 'black spider' letters to be published 'within weeks'

    Prince Charles' 'black spider' letters to be published 'within weeks'

    Supreme Court rules Dominic Grieve's ministerial veto was invalid
    Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

    How did fandom get so dark?

    Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
    The galaxy collisions that shed light on unseen parallel Universe

    The cosmic collisions that have shed light on unseen parallel Universe

    Dark matter study gives scientists insight into mystery of space
    The Swedes are adding a gender-neutral pronoun to their dictionary

    Swedes introduce gender-neutral pronoun

    Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
    Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

    Disney's mega money-making formula

    'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
    Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

    Lobster has gone mainstream

    Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
    Easter 2015: 14 best decorations

    14 best Easter decorations

    Get into the Easter spirit with our pick of accessories, ornaments and tableware
    Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

    Paul Scholes column

    Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
    Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

    The future of GM

    The greenhouses where Monsanto 'plays God' with the future of the planet
    Britain's mild winters could be numbered: why global warming is leaving UK chillier

    Britain's mild winters could be numbered

    Gulf Stream is slowing down faster than ever, scientists say
    Government gives £250,000 to Independent appeal

    Government gives £250,000 to Independent appeal

    Donation brings total raised by Homeless Veterans campaign to at least £1.25m
    Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

    The most borrowed book at Bank of England library? Oh dear

    The book's fifth edition is used for Edexcel exams
    Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

    Cowslips vs honeysuckle

    It's the hunt for UK’s favourite wildflower
    Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

    Did a botched blackmail attempt help Cyril Smith escape justice?

    A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss