Homeowners with SVR Instead of Remortgage are Paying More Than Needed

Homeowners with SVR Instead of Remortgage are Paying More Than Needed

Homeowners could be throwing away money. In the hopes of waiting out for lower interest rate offers in remortgaging, they have bypassed securing a new deal and allowed their lender to move them to their standard variable rate (SVR). Waiting for lower rates could be costing their household budget dearly. According to a recent report, almost a third of homeowners have taken on a SVR. Some may have forgotten to remortgage, or avoid it for they felt it would be hard and stressful, while others are holding out for lower rates before they remortgage. The report revealed they are likely spending an average of £278 a month unnecessarily.

A remortgage normally has a lower interest rate and a SVR could be double or more the rate that could be found in remortgaging.

In addition to a lower rate offering savings, a remortgage also allows the choice of a fixed rate deal locking in the chosen interest rate. The uncertainty of current lender rates has led homeowners to make the fixed rate five-year term remortgage the most popular. They are determined to lock in their rate of now against any further increases in the years ahead.

Those coming to the end of a fixed rate mortgage this year are likely facing higher rates than they were used to playing. For instance, in June 2020, when homeowners might have secured a two-year fixed mortgage, the standard base interest rate of the Bank of England was increased to 1.25%. Those securing a three-year deal in June 2021 had choices of lender rates based on the historically low base rate of almost zero at 0.1%.

The current base rate is 5.25% and lender rates are reflective of the higher rate. However, in anticipation of the Bank’s Monetary Policy Committee (MPC) reducing the rate this year as inflation nears the target of 2.0%, lenders are becoming competitive and cutting their rates despite none by the MPC so far.

If there is a cut to the base rate in the near months, it will likely be small, such as 0.25% taking the base rate to 5.0%. Because of the recent cuts by lenders to their mortgage and remortgage rates, there are already rates on the lending market that are attractive and could be considered reflective of the expected cut that is yet to come.

Experts encourage homeowners to shop for a remortgage online. It is easy and fast to get remortgage quotes to review and compare. There is no commitment when getting quotes, so there is no reason to put off discovering what offers are available. In comparison with SVRs, homeowners could determine the savings to be found.

Homeowners should also know that they could remortgage and do so again when rates are lower. While the five-year term remortgage has been the most popular with homeowners, if they feel rates will be better in two years, they could pick a shorter term. There is also the opportunity to end a term early and pay a penalty. In times when rates are reaching lower and lower, homeowners do often take on a penalty fee to end their current term and remortgage to a longer term at a much lower rate. 

The point of shopping online for remortgage quotes is to determine what savings could be found with a remortgage deal. It is also a great tool for homeowners not yet at the end of their mortgage term and questioning what they will face ahead when theirs ends should rates be similar. 

Shopping on the website of a remortgage broker could offer the homeowner exclusive deals from lenders not offered directly to borrowers. Broker sites could also offer numerous quotes from a variety of lenders. Going from lender website to lender website is another way to gather quotes to review.

Nicholas Mendes, mortgage technical manager at John Charcol, remarked, “For borrowers, sticking with or switching back to a SVR is generally not advisable unless the mortgage amount is very small, or a property sale is imminent. 

“This is because SVRs are usually 3 or 4 per cent higher than fixed rates. There will likely be alternative deals with the existing lender which would be more cost effective.”

In other advice, from Liz Edwards, mortgage expert at the personal finance comparison site Finder, remarked, “It's easy to let renewals slide for a while and even if you remember to renew your mortgage, if you leave it too late then you may need to wait a month or two for the rate on your new deal to kick in. For mortgages this can have a significant impact on the amount you pay.

“The extra monthly cost is shocking in itself, but as an illustrative point, if someone paid off a 30-year mortgage using the current average revert rate versus the current average three-year rate, they'd pay an extra £180,000 in needless interest. 

“So, set a calendar reminder and make sure you find a new deal in plenty of time before your fixed deal expires.”

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