Escape the 12.55% mortgage interest rate!

by John Fitzsimons on 13 February 2010  |  3 comments
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Lenders have started hiking up SVRs, with some mortgage interest rates now at staggering levels. Now may be the time to head for a new lender.

It's fair to say that remortgaging activity has pretty much fallen off a cliff in recent times. According to the most recent figures from the Council of Mortgage Lenders, the number of remortgage loans approved in November 2009 fell a massive 39% from the same month in 2008.

In value terms remortgages had fallen by a frankly astonishing 46%.

Why remortgaging has plummeted

And the main reason for this has been the relatively cheap levels that standard variable rates (SVR) have stood at. The SVR is the rate you move onto when your initial mortgage period ends - so if you are on a two-year fixed deal, once those two years are up you are plonked onto the SVR.

Back when everything was rosy in the mortgage market, this was the cue for borrowers to remortgage, as new deals were considerably cheaper than paying the nasty SVR. However, for the last year, with Bank Base Rate rooted at record low levels, it has been cheaper to sit it out on the SVR and wait for better mortgages to come along.

However, if you are one of those borrowers biding their time, the lenders may now be forcing your hand.

The rise of SVRs

A number of lenders have started ramping up their mortgage SVRs in recent weeks, some by significant margins.

Skipton Building Society hit the headlines by increasing its SVR markedly, as well as ditching a previous promise for its SVR to always be within 3% of Bank Base Rate. It was followed by Norwich & Peterborough, whose SVR jumped from 4.85% to 5.35%.

Despite these jumps, they are far from the worst offenders.

New research from largemortgageloans.co.uk has highlighted the significant variance in the SVRs of different lenders, with some charging eye watering sums of almost three times the average!

The top of the SVR pops

It should be no great surprise that the firms at the very top of the list were involved in sub-prime lending, but I have to confess to being taken aback by the fact that two building societies have such whopping SVRs. It's certainly not something you expect from mutuals.

When you consider that the average SVR is 4.79%, it shows just how punitive these rates really are.

Punishing your wallet

 A quick example demonstrates just how harsh these rates are. If you have 25 years left on a £150,000 mortgage, and your SVR is 4.79%, your monthly payments should be around £858.

However, if you are unlucky enough to be with Cheshire Mortgage Company, those repayments rocket to £1,641!

Even with Nottingham Building Society, your repayments jump more than £120 a month to £979

The negative equity problem

If you are languishing on a punishing SVR, the very simple thing you should do is remortgage elsewhere.

Of course, it's not always that simple. The one thing you absolutely need in order to remortgage is equity, but the credit crunch has taken its toll on house prices over the last couple of years, and many homeowners' equity stakes have suffered as a result.

In fact, last year the Bank of England warned that more than a million mortgage holders were now in negative equity - not quite the Armageddon scenario it's often portrayed as, but certainly a status that realistically eradicates your ability to remortgage.

If you are currently stuck in negative equity and unsure of your options, it's definitely worth having a watch of How to...get out of negative equity. You might also like to follow some of the tips in our Make home improvements goal, to help ramp up your property's value.

For those with equity

However, so long as you have 20% of equity in your property remortgaging should not be a problem.

Thankfully there are plenty of attractive products available to remortgagors at the moment. I've put together a table of some of the most competitive deals below to give you a taste of what to expect:

It's clear that lenders aren't going to wait for Bank Base Rate to start rising before they hike up their SVRs, particularly with Base Rate expected to stay low for a while yet. If you are on an SVR, now really is the time to head for a new deal - mortgages, particularly those of a fixed variety, are only likely to get more expensive.

More: 6 terrific tips for buying an overseas property | Hope at last for first-time buyers

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 4045 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 will revert to the lender's standard variable 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.