Borrowers on standard variable rate mortgages may not be benefiting from the record low base rate as SVR rates have crept up.
Moneysupermarket.com, who are warning consumers about the benefits of switching energy suppliers today, is also alerting borrowers on standard variable rate mortgages not to be complacent.
The average SVR deal is now 4.2 per cent above the Bank of England Base Rate compared to 2.68 per cent 12 months ago, according to Moneysupermarket.com. This represents a a reduction of just 0.98 per cent in twelve months compared to a 2.5 per cent fall in Base Rate over the same period.
The costs of SVR mortgages has risen as some lenders have increased their profit margins on SVR deals in the space of twelve months by not passing on the full Base Rate cuts or subsequently increasing their rates. This means that some SVR deals may not be the best way of benefiting from the every low bank of England base rate.
However this analysis by Moneysupermarket.com follows recent research that the popularity of fixed rate mortgages is falling as buyers select tracker mortgages which offer a discount against the standard variable rate.
Householders should consider switching to better mortgage deals, as long as the arrangement fees and associated costs do not obliterate any savings that can be made. This is emphasised by Hannah-Mercedes Skenfield, mortgages channel manager at moneysupermarket.com, who said:
“Borrowers need to be aware that lenders are free to price their SVR as they please, and therefore an SVR deal might not be the best way to get the most benefit from the low Base Rate environment.”
“For those who have built up at least 20 per cent equity in their home, it is likely that you will be able to find a better rate on a three year fixed deal, at which point the only real drawback from fixing is the arrangement fee, which can be anything from around £1,000 to nothing at all.”
Those with less than 20% equity in their homes will find it much more difficult, if not impossible, to switch to a better mortgage deal, however.