Mortgage borrowers: Get off your SVR - quick!

Mortgage borrowers sitting on their bank's SVR are being urged to remortgage now. Lenders across the board are set to hike their standard rates - whatever happens to interest rates in the near future. We outline your options and uncover the best mortgage deals

The economic turmoil of the past couple of years hit most of us hard - but in that time some lucky homeowners enjoyed historically low interest rates on their mortgage deals as the Bank of England slashed its Base Rate to an all-time low of 0.5%.

Several major lenders - including Nationwide, Cheltenham & Gloucester, Halifax and Skipton - had written clauses that limited their scope to increase SVR rates to only 2% above base rate. That meant many borrowers still enjoyed affordable deals of 2.5% even when their home loans reverted to SVR status - allowing them to overpay freely without costly fees.

Of course, with mortgage availability severely restricted during the first half of last year, at that time a quarter of all mortgage borrowers had no option but to stick with their existing lender when their discount deals came to an end - but now the situation is very different. 

The availability and cost of most mortgage deals has improved dramatically in recent months. Figures from analysts Moneyfacts show that while the average standard variable rate for a typical £150,00 home loan is currently 4.66%, the average cost of a two-year, fixed-rate deal has fallen to 3.8% for borrowers with a 25% deposit or more.

The average tracker rate is even lower at 3.7%, while the number of home loans available has increased dramatically since the turn of the year. And what’s more, it could be the right time to make your move - a major new report from a leading mortgage broker has found that anyone with a 15% deposit who is paying an SVR of 3.5% or more should now take the time to switch.

Why it could be time to switch

The report uncovers a nasty trend among lenders concerning their SVRs. The Bank of England base rate has sat at 0.5% since March 2009 - but no lender has cut its SVR for nearly a year.

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Mortgage rates are determined by a number of factors beyond base rate - particularly by the LIBOR rate at which banks lend to each other. Even so, borrowers will still be astonished to learn that 16 lenders have increased their SVRs over the past 12 months. Two lenders - the Leeds and Buckinghamshire building societies - have hiked their rates already this month and the report predicts that many more will follow.

And even those lenders who previously vowed to limit SVR increases have moved to up their rates. Last month saw Lloyds TSB and mortgage arm Cheltenham & Gloucester introduce a “Home Owner Variable Rate” for all new customers of 3.99%. And earlier this year, building society Skipton scrapped its SVR guarantee to even existing customers, citing “exceptional circumstances” for the move to nearly double its SVR to 4.95%.

What’s more, a consensus is growing that interest rates will soon start to rise - particularly following last month’s shock increase in the rate of inflation to 3.7% - putting further upward pressure on SVRs.

Just eight lenders now have SVRs of 3.5% or below - including mortgage giants Nationwide and Halifax - but borrowers with other institutions may want to start shopping around, particularly as most will escape Early Repayment Charges (ERCs). But what kind of deal should they look out for?

The latest best buys

The savings that up for grabs are significant. Someone with a £250,000 mortgage paying the market average SVR of 4.79% and holding 30% equity could save nearly £400 a month by switching to a best buy deal. Someone with the same mortgage but holding 15% equity could still save nearly £170 a month.

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Among the best deals currently available on lifetime trackers are those from First Direct at 2.29%, which requires a 35% deposit, or the lifetime tracker from ING Direct, which is open to borrowers with a deposit of 25% or more at just 2.84. Those looking for a fee-free deal may want to look at the 3.19% tracker from the Woolwich.

If you prefer to pay a small premium for peace of mind, you can also find some competitively priced fixed-rate deals, particularly for longer-term fixes of five or 10 years. Leading the way is the Yorkshire Building Society with a 10-year fix open to both new borrowers and people looking to re-mortgage charging 4.99%. The deal is open to people with a 25% deposit or more and comes with a flat fee of £995. Find out more about long-term fixes here.

A worthwhile five-year fix at 4.79% is available from ING Direct – this deal is open to those with 20% equity or more and total fees of £945.

Find the right mortgage for your needs with our free mortgage search or make it your goal to cut your mortgage costs and pay off your mortgage early.

Use lovemoney.com's innovative new mortgage tool to find the best mortgage for you online

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.