If you are unfamiliar with the term SVR, it stands for Standard Variable Rate. This is the interest rate that a lender applies to its mortgages. There has been a growing number of reports in the press that more and more borrowers are finding themselves becoming stuck on an SVR, and it is costing them a lot of money.
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.
SVR – what it means
Borrowers are typically moved on to an SVR mortgage when their fixed rate, introductory or tracker rate mortgage ends.
Each bank and building society sets its own SVR. These can vary widely. Research from lovemoney.com shows the lowest SVR on the market is offered by Lloyds Bank at a rate of 2.25%. The highest rate stands at 5.99% which is offered by the Newcastle Building Society.
Not all SVR’s are linked to the Bank of England’s Base Rate. However, if the Bank of England decides to change this rate, lenders typically follow suit. Usually by increasing the level of their SVR. Lenders will notify you of this change, but they are not at liberty to inform you if you could save money using another product.
The ‘mortgage prison’ trap
The financial crisis of 2007/8 subsequently saw many lenders put in tougher affordability checks. These checks allow the lender to see that you have the money to make mortgage repayments for the duration of the term. The lender will ask for details of your income and for a full list of expenses, including credit card debt, outstanding loans, school fees and travel costs.
Following the introduction of these tougher checks, many borrowers were refused new deals and were moved on to a standard variable rate and have been unable to move off them since.
In some cases, the difference between the standard variable rate and a two fixed rate could be as much as 2.66%.
The situation has been compounded lately by the influx of low deposit and high loan to value mortgages that have come onto the market. A report by The Telegraph shows that in June there were 287 mortgages where a 5% deposit was required, this is compared to 190 available mortgages two years ago and six in 2009.
Falling house prices are also a concern. The latest figures released by Nationwide, show that house prices in the capital dropped by 0.6% for the first time in eight years.
How to avoid becoming trapped in an SVR mortgage
Following the Bank of England’s meeting last month, there is speculation that we could see an increase in the interest rate. If you are on an SVR mortgage, chances are that your lender will increase their SVR.
Now is the time for you to review your options to see if you can move onto a new product and save yourself money.
The specialist team at Dental and Medical Financial Services are on hand to give you independent advice on the purchase your first home, buy-to-let property or if you looking to remortgage.
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