Mortgage rate gap widens as borrowers move onto SVRs
25 January 2010 / by Rachael Stiles
The difference between the cheapest and most expensive mortgage lenders has widened to £5,670, as more borrowers are moving onto their lenders’ standard variable rates, Moneyfacts.co.uk has suggested.
While the base rate has stood at a record low of 0.5 per cent for 10 months, this has not been reflected in the mortgages available, so with little incentive to move onto a new mortgage deal when theirs ends, an increasing number of borrowers have been settling for the SVR instead.
The lowest cost of a £150,000 mortgage is £3,996.58, at a rate of 2.50 per cent, whereas the most expensive costs £9,686.30, at 6.45 per cent, the data shows.
Many mortgage lenders’ standard variable rates have become “disjointed” from the base rate, according to Michelle Slade, spokesperson for Moneyfacts, as only a fraction of last year’s cuts in interest rates by the Bank of England have been passed on.
“Some borrowers on SVR may have paid more than double for the same mortgage than if they had been with a different lender,” she said, but those paying the most “are likely to be those with little equity, which diminishes their options.”
The static base rate has actually made SVRs look relatively attractive compared to some of the other options available, Ms Slade believes.
“SVR has become a real product option for many borrowers. Many see little incentive to move on to a new deal where, in many instances, the rate is much higher than the SVR,” she said.
Meanwhile, fixed rate mortgages have been falling by the wayside in favour of SVRs and tracker mortgages while borrowers consider “the here and now,” but Ms Slade expects this to change once the base rate inevitably shows signs of rising, and fixed rates start to look more tempting.
She warns borrowers not to wait too long, however: “Many borrowers are just looking at, and are not considering the future impact of base rate rises. Borrowers who delay the decision to find a new deal may find they experience a more significant rise in their repayments when they do move.”
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