0 Comments | Mail on Sunday (London, England), The, July 18, 2010
Byline: JO THORNHILL
MILLIONS of homebuyers enjoying the current low levels of standard variable rate mortgages could cut costs even more – and have the security of a fixed deal. The turmoil that has gripped the mortgage market over the past two years has meant more people reverting to their provider’s SVR when their fixed or tracker loans end.
Most SVRs are historically low and there are none of the fees and penalties associated with signing up to a new deal. More than 2.3 million borrowers, 28 per cent of the market, are now on SVR mortgages compared with 1.6 million a year ago.
But the mortgage market is continuing to evolve in the wake of the credit crisis and several lenders have launched attractive fixed deals recently.
About three-quarters of borrowers currently on SVRs have a healthy amount of equity in their home, 15 per cent or more, which means they could probably find a lower rate elsewhere.
The average SVR is 4.73 per cent, according to data analyst Moneyfacts, although many are lower (see table, right), but this is still higher than the current best-buys for those with equity in their home.
The best two-year fixed rate for a borrower with 25 per cent equity is 2.99 per cent with Yorkshire Building Society. There is a [pounds sterling]495 arrangement fee. The best two-year tracker, from Chelsea Building Society, starts at 2.59 per cent with a [pounds sterling]495 fee.
A borrower with a [pounds sterling]150,000 repayment mortgage paying Santander’s 4.24 per cent SVR, for example, could save [pounds sterling]103 a month by switching to Yorkshire’s two-year fix. Even after the [pounds sterling]995 arrangement fee is paid, the borrower will still make a saving over the two-year term.
‘A record number of borrowers are stuck in mortgage limbo on standard variable rates that are far higher than best-buy deals,’ says Tom Girling, mortgage product manager at Yorkshire Building Society, which carried out the research into SVRs.
‘Our analysis shows that 75 per cent of them could make significant savings by switching to a better deal. And as they are on an SVR, they are free to switch lender immediately without incurring penalty fees.’
Melanie Bien, director of mortgage broker Private Finance, says while borrowers may like the flexibility of an SVR, fixes are unlikely to fall much further – and she warns people could lose out if they wait until rates rise.
‘If house prices fall, as has been predicted, you could end up with less equity, making it more difficult to remortgage, or at least at a competitive rate,’ she says.
While those with SVRs at 2.5 per cent, such as borrowers with Lloyds TSB and Nationwide, have little incentive to move, they should keep an eye on interest rates and house prices.
Some SVR loans, especially those that track the Bank of England base rate by a small margin, are better value than most deals on offer. But SVR borrowers are at the whim of their lender, or the Bank in the case of trackers, over what happens to their rate.
Stephen Wadsworth, 47, a driver for a delivery firm, and his wife Michelle, 44, who works in a supermarket, have decided not to gamble on an SVR.
They were with Nationwide where they could have reverted to a market-leading SVR of just 2.5 per cent once their fixed rate came to an end. But the couple, who live in Portsmouth with their two children, Jack, 16, and Kayleigh, 13, switched.
They have taken a two-year fix at 3.05 per cent with Yorkshire Building Society, paying a [pounds sterling]995 arrangement fee. Borrowers need at least a 25 per cent deposit or equity to qualify
fixed home loan