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Increased variable rates – do you know what you pay?

When you first take out a mortgage, you generally secure a fixed interest rate for a set period of time – usually two, five, or ten years. This rate is set regardless of any market shifts or rate changes by the Bank of England. But once the introductory period on the mortgage ends, lenders switch the loan to a standard variable rate (SVR).


This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.


It’s important to be aware of when the terms will change on your mortgage so you can remortgage before your monthly payments increase.


Ups and downs to the standard variable rate

Standard variable rates are typically much higher than fixed rates – many hover around 4%, while fixed rate mortgages can be found for as low as 1% for two years or 2% on a five year loan. And as the name suggests, variable mortgage rates fluctuate during the term of the loan, so your repayments won’t remain the same month to month. 

While this doesn’t necessarily seem like an ideal scenario, there are a few advantages to a variable rate. The main benefit is that when rates are low, so are your payments. There’s also usually no Early Repayment charges, so you have the flexibility to overpay when your payments are low, the ability to pay off your mortgage, or the freedom to remortgage for a better deal.


Variable rates will be affected by rises in interest rates

The standard variable rate is dictated by your lender so they can raise or lower it whenever they see fit. One reason they may increase the rate is in response to the Bank of England raising the base rate. This is the path many providers went down after the rate hike last November. The major lenders have already matched the BoE increase by raising their rates by 0.25%.

This may not seem like much, but if a borrower’s rate increased from 3.75% to 4% on a £300,000 loan, an additional £504 would be added.

If rates continue to rise, as experts are predicting, costs could get overwhelming. Frustratingly, just because banks raise SVR rates alongside the Bank of England’s rate, it doesn’t mean they pass on savings and reduce the rates when the BoE base rate decreases.


Planning for the end of your fixed rate

The last thing a busy medical and dental professional has on their mind is their mortgage terms. While it’s easy for the end of your fixed rate to sneak up on you, it’s important to plan ahead. Your lender is obligated to contact you when your standard variable rate it changes, but that’s where their duty ends.

They have no responsibility to help you find another product to help you save money.

In fact, most lenders count on the fact that borrowers won’t bother to look for better deals so they can cash in on the extra interest you pay with a standard variable rate.

If you’re interested in remortgaging with another fixed rate loan to save money, a mortgage specialist will be able to evaluate your needs and help you search for the best deal.


Could you save money on your mortgage?

Ensure you are not paying over the odds for your mortgage being stuck on an increasing variable rate. Chris can help find the most competitive mortgage for you that suits your current circumstances.

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