Paying 3.5% or more on your mortgage? Switch to a better deal

Lenders are increasing their standard variable rates and it’s time for homebuyers who have moved to their lender’s SVR at the end of a fixed or tracker package to think about switching to a cheaper deal.  Anyone who is currently paying 3.5% or more who has at least 15% equity in their homes can now remortgage to a better rate.

Lucky homeowners

The lenders have, in many instances, been unable to change the terms of mortgage contracts which linked SVRs to Bank Base Rate and millions of lucky homebuyers with Nationwide, Lloyds TSB, Cheltenham & Gloucester and Intelligent Finance are currently paying just 2.5% because the SVR is fixed at a maximum of 2% above BBR.

But that doesn’t stop the lenders from upping the rates for new borrowers.  Lloyds Group and its subsidiary Cheltenham & Gloucester has just introduced a new ‘Homeowner Variable Rate’ at 3.99% for all new mortgages taken out from 1^st June.  New borrowers will also suffer from the removal of the guarantee that the SVR will never be more than 2% above Bank Base Rate.  Existing homebuyers on SVR will continue to pay at just 2.5%.

In addition, lenders like Nationwide charge the new higher SVR of 3.99% if you switch products within the company and borrowers will lose the benefit of the lower ‘revert to’ rate of 2.5% if they switch products.

For existing borrowers paying an SVR of 2.5% there is no point in moving. Others who should stay put include Woolwich customers who have reverted to its lifetime tracker rate of Bank Rate plus 0.95%, (1.45%) or those on Intelligent Finance’s SVR or the old SVRs of Nationwide, Cheltenham & Gloucester, Lloyds TSB  which are all at 2.5%, or Bank of Ireland or Bristol & West, both 2.99%.  The only reason for these borrowers to move is if they want the certainty of a fixed rate.

Shop around

But homebuyers with major lenders like Halifax who are paying 3.5% or more should now start to shop around because there are cheaper deals available if you are a good credit risk.  Some borrowers, often with the small building societies, are now on SVRs of 5% or 6% or more. Over the past year 16 lenders have increased their SVRs – even before there has been any increase in Bank Base Rate.  House prices have recovered and are now less than 10% below the peak of 2007 so remortgaging to get a better deal is now a real possibility for many. 

Five year fixed rate loans – hopefully long enough to see you through the expected rise in interest rates - are now down to around 4% and are at their cheapest level since 2003.  If you are on your lenders SVR, there is unlikely to be any penalty charges for moving to another lender.  The only requirement is that you don’t have any adverse credit history and you don’t need a self-cert loan.

Tracker or fixed?

‘The most important consideration when remortgaging is whether to switch to another variable rate - in all probability a tracker - or a fixed rate,’ says Ray Boulger of mortgage broker John Charcol who has been researching the situation.   ‘Lifetime tracker rates are very similar to the rates available on short-term trackers and generally have similar or lower early repayment charges.  For borrowers wanting to switch to another variable rate we would generally recommend a lifetime tracker.’

He points out that the June Budget is going to hit some of us hard so now is the time to look at cutting costs on your mortgage – for many the largest item of expenditure.     Someone with a £250,000 mortgage on Northern Rock’s SVR would save £396 a month if their loan to value is 70% or less, £333 at an LTV of 75%, £271 at 80% and £167 a month at an LTV of 85%.