A massive four in ten mortgage borrowers are currently sitting on their lender’s standard variable rate (SVR). Many have been happy to do so, as these interest rates dropped significantly in 2009 following the credit crunch, meaning so too did their monthly repayments.
For some, that SVR has been cheaper than any of the new rates they could switch to. Doing nothing made sound financial sense – no switching fees, no hassle, no form filling and you couldn’t get a better deal anyway.
But the mortgage market doesn’t sit still. Now lenders have made their new deals a lot more competitive. Indeed, they are often more attractive than many lenders’ SVRs, so millions of borrowers could now be paying over the odds.
Who can save by switching?
According to HSBC a massive 3.6 million borrowers a year could save a significant sum of £1,000 or more a year by remortgaging from their lender’s SVR to a new cheaper deal. The lender says that this represents four out of every five borrowers that are currently on an SVR, and 40% of the whole mortgage market.
It is definitely worth looking into whether you can save by switching, especially as most mortgage borrowers on SVR are free to move, so they won’t incur any early repayment charges if they remortgage.
HSBC has based its calculations on someone remortgaging from the average SVR – which is 4.86% according to Moneyfacts – to its two-year discounted rate mortgage at 3.84%, which is available up to 85% of a property’s value. It says that borrowers with a typical mortgage of £150,000 would save a handsome sum of £1,034 a year if they made the move.
Who can’t save?
According to HSBC, those who have less than 15% equity in their home probably won’t be able to save money by remortgaging based on current deals available to them on the wider market. The lender calls these borrowers ‘mortgage prisoners’ and it reckons that there are over 839,000 in the UK, accounting for 19% of borrowers currently on their lender’s SVR.
These borrowers don’t currently have enough equity to move to a more competitive rate so it won’t be worth them remortgaging until either house prices rise, which would improve their equity position, or mortgage deals become more competitive.
HSBC reckons that the number of borrowers stuck with insufficient equity has risen by a massive 40% over the last year, not least because of falling house prices eating into their equity.
[SPOTLIGHT]These mortgage prisoners make up 7.4% of the total UK market. The regions with the highest proportion of "mortgage prisoners" are the north west (10.2%) and northern region(9.9%), according to HSBC, while the regions with the lowest proportion are east Anglia (4.4%) and the south east (5.1%).
The research on mortgage prisoners gives an interesting overview of the broad number of people who are able to save by remortgaging and those who are trapped in their deals. But it is based on averages rather than actual borrower circumstances.
So don’t assume that you can’t save from switching if you have less than 15% equity, or that you are paying over the odds on your SVR if you have more than 15% equity in your home.
Not so average borrowers
The HSBC figures above are based on calculations using the average SVR of 4.86%. But of course, borrowers don’t pay the average SVR, they pay their own lender’s SVR.
This means that there will be some borrowers on much higher SVRs than the average. Kent Reliance’s SVR is 6.08% for example, so plenty of borrowers with less than 15% equity are still likely to be able to find a better deal on the market than that.
On the flipside, there are hundreds of thousands of borrowers paying a lower SVR than the average 4.86%, and even a lower rate than the two-year discount example of 3.84% used in HSBC’s research.
For example, customers of Nationwide (from before May 2009), Lloyds TSB and Cheltenham & Gloucester are only paying 2.5% - and a rate guarantee means that the lender can’t currently hike this rate. So these borrowers have lucked out – despite being ‘free to move’ they would frankly struggle to find a much better deal, once fees are taken into account.
If you are on SVR, but you are unsure if you can save by switching, find out what rate you are paying and work out your loan-to-value ratio (your current mortgage balance as a proportion of the property’s current value).
Then look at the current deals available – below are ten of the best – and see if they are cheaper, and whether significantly so. You will still have to factor in switching costs, but you might find that, in the current market, your lender’s SVR isn’t that attractive after all.
Ten top mortgage deals
|
Lender |
Type of deal |
Rate |
Fee |
Max LTV |
|
Two-year fix |
1.99% |
£1,999 |
60% |
|
|
Two-year fix |
2.28% |
£1,995 |
60% |
|
|
Term tracker |
2.54% |
£1,499 |
60% |
|
|
Two-year tracker |
2.64% |
£795 |
75% |
|
|
Three-year fix |
2.78% |
£999 |
60% |
|
|
Five-year fix |
2.79% |
£999 |
60% |
|
|
Five-year fix |
2.99% |
£1,495 |
75% |
|
|
Three-year tracker |
3.39% |
£795 |
85% |
|
|
Two-year fix |
3.59% |
£999 |
85% |
|
|
Two-year fix |
3.99% |
Fee-free |
90% |
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At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.