11:24 03 June 2013
The Bank of England base rate might have remained at 0.5% since March 2009, but the main rate of interest charged by mortgage lenders, known as the standard variable rate (SVR), is actually creeping up.
The average SVR today stands at 4.34%, up from 4.16% a year ago. And this means that if you're on your lender's SVR, your mortgage repayments could also be increasing.
What is the SVR?
The SVR is the rate your lender will move you on to once your current mortgage deal ends. So if you have a two-year fixed rate mortgage, once those two years are up, you'll be put on your lender's SVR.
SVRs vary from lender to lender but are typically a few percentage points above the base rate. However, they are not actually linked to the base rate, and - in the vast majority of cases - your lender can change its SVR whenever it chooses to. This means that even if base rate remains unchanged, your lender's SVR, and therefore your mortgage repayments, can still go up.
But the good news is that if you are on your lender's SVR, you can move off it at any time without paying a penalty. And with mortgage rates at record lows, now is the perfect time to remortgage to a better deal.
Mortgage availability up, mortgage rates down
There really couldn't be a better time to be a borrower. The Funding for Lending Scheme (FLS), which offers cheap funding to lenders on the proviso they pass this on to customers in the form of cheap mortgages and loans, was announced in April 2012, and since then, mortgage availability has improved, while mortgage rates have continued to fall.
In fact, research by MoneySupermarket shows the number of mortgages available to borrowers has increased by 34% since April 2012, to 3,288 - the highest level seen since August 2011.
On top of this, rates on two-year fixed mortgages have fallen from 4.21% in April 2012 to 3.28% today, while rates on five-year fixed mortgages have dropped from 4.67% to 3.84%.
This means remortgaging from your lender's SVR could certainly pay off. So let's take a look at some of the best offers.
Fixed rate mortgages
Those with larger deposits continue to benefit from the very best mortgage rates. For example, if you have a deposit of 40%, Tesco Bank has just launched a two-year fixed rate mortgage at 1.74%, reverting to 4.24% after two years. The deal has a £1,495 fee and the overall cost for comparison is 3.9% APR. Early repayment charges apply.
To give you an idea of how much you could save on your mortgage repayments by switching to this deal, let's say you have a mortgage of £200,000. Based on a 25-year term, if you were on the average SVR of 4.34%, you'd currently be paying £1,094 a month on a repayment basis.
Yet if you switched to Tesco's 1.74% deal, you'd pay £823 a month - that's a saving of £271 a month, or £6,504 over the two years. Even factoring in the £1,495 fee, you'd still save more than £5,000 in two years, and the savings could be even greater if your lender's SVR had increased during that time.
If you'd prefer to fix your mortgage repayments for five years, Tesco Bank also offers a five-year fix at 2.49%, reverting to 4.34% after five years. The deal again has a fee of £1,495 and the overall cost for comparison is 3.7% APR.
Deals with a lower deposit
However, if you'd prefer a deal with no fee, HSBC offers a five-year fix at 2.99%, reverting to 3.94% after five years. The overall cost for comparison is 3.6% APR. Early repayment charges apply to both of these deals.
Using the previous example, if you were to switch from an SVR of 4.34% to HSBC's five-year fix at 2.99%, you'd pay £147 less a month with HSBC, or £8,820 less over the five years.
But if you can't afford a deposit of 40%, don't worry as there are plenty of competitive rates available for those with smaller deposits. If you have a deposit of 20%, for example, you can enjoy a rate of 2.74% with the Newcastle Building Society two-year fixed rate deal, reverting to 5.99% after two years. The fees come to £995 and the overall cost for comparison is 5.6% APR. Early repayment charges apply.
Switching your £200,000 mortgage to this deal from an SVR of 4.34% means you'd save £172 a month on your mortgage repayments, or £4,128 over the two years (£3,133 if you deduct the fee).
Those preferring a tracker mortgage will also find there are a number of competitive deals to choose from - particularly for lifetime trackers. Just remember, your mortgage repayments can change during the term of the deal.
If you have a 40% deposit, both Cheltenham & Gloucester and Lloyds TSB offer a two-year tracker at 1.89%. The deals track 1.39% above base rate for two years, before reverting to a rate of 3.99%. Both mortgages come with a £1,995 fee and the overall cost for comparison is 3.9% APR. And there is not even an early repayment charge.
Switching your £200,000 mortgage from an SVR of 4.34% to one of these deals would save you £257 a month or £6,168 over the two years (£4,173 once the fee has been factored in), assuming base rate remains unchanged.
If you would prefer a lifetime tracker, take a look at HSBC's offering at 2.28% with a fee of £1,999. The overall cost for comparison is 2.5% APR and there are no early repayment charges.
Those with a 20% deposit can take advantage of Metro Bank's two-year tracker at 2.89%, reverting to 4% after two years. It has a fee of £999 and the overall cost for comparison is 3.9% APR. Early repayment charges apply.
Or, if you'd prefer a lifetime tracker, Coventry Building Society offers one at 2.99% with a fee of £999. The overall cost for comparison is 3.1% APR and there are no early repayment charges.
YOUR HOME MAY BE REPOSSESSED IF YOU DON'T KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.
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