Avoid Making a Costly Mistake by Not Checking When You Go onto the Lender’s SVR
Written on 27 April 2023 by
There are an estimated 2 million homeowners on variable rate deals, such as Base Rate trackers or even their lender’s SVR (standard variable rate), who will see an almost immediate rise in their monthly repayments following the latest Base Rate rise to 4.25%.
The average SVR has passed the 7% mark for the first time in 15 years, following 11 consecutive Base Rate rises. With a further rise expected in May 2023 of 0.25% - bringing Base Rate to 4.5% - there will be added pressure to an already growing precarious time within households trying to manage higher outgoings.
What Is an SVR?
A SVR is the background rate that the lender charges interest at for those who have moved off a fixed rate and/or an initial term product. Lenders set the SVR themselves which often increases in line with the Bank of England Base Rate.
The reason why it’s important to take action to ensure you avoid going onto the lender’s SVR is that the SVR can be set to whatever level they like.
For example, to demonstrate the range between lender’s SVRs: Newcastle Building society's SVR is only 5.19% whereas Virgin Money's SVR is 8.24%.
While SVRs often increase in line with the Bank of England they do not necessarily reduce in line with any reductions - meaning many homeowners could face a double whammy.
Why Have They Increased Now?
Between December 2021 and March 2023, the Bank of England increased its Base Rate at 11 consecutive meetings, taking the Base Rate from 0.1% to 4.25% - from the lowest level ever to the highest level in 14 years.
The Bank of England is attempting to quell rising inflation which is now well above their official target of 2%.
Due to the how quickly the Base Rate has risen in a short period of time, the homeowners on an SVR who chose not to take action will have seen their mortgage payments increase at each Base Rate rise.
The Base Rate has increased to highs not seen since 2008.
Date Changed | Rate |
23 Mar 23 | 4.25 |
02 Feb 23 | 4.00 |
15 Dec 22 | 3.50 |
03 Nov 22 | 3.00 |
22 Sep 22 | 2.25 |
04 Aug 22 | 1.75 |
16 Jun 22 | 1.25 |
05 May 22 | 1.00 |
17 Mar 22 | 0.75 |
03 Feb 22 | 0.50 |
16 Dec 21 | 0.25 |
19 Mar 20 | 0.10 |
11 Mar 20 | 0.25 |
02 Aug 18 | 0.75 |
02 Nov 17 | 0.50 |
04 Aug 16 | 0.25 |
05 Mar 09 | 0.50 |
05 Feb 09 | 1.00 |
08 Jan 09 | 1.50 |
04 Dec 08 | 2.00 |
06 Nov 08 | 3.00 |
08 Oct 08 | 4.50 |
10 Apr 08 | 5.00 |
07 Feb 08 | 5.25 |
What Options Are There?
There are many stories of homeowners who sit on their lender’s SVR, often due to a change in circumstances they don’t want to tell the lender about out of fear they will take the mortgage away, when in fact they could actually move onto a lower rate with the existing lender via a product transfer.
Being on a lender’s SVR will typically suit those that are due to sell their property or nearing the end of their mortgage, allowing them to make overpayments or clear the mortgage without any charges.
Otherwise, outside of looking at a product transfer with the existing lender, homeowners can move onto a fixed rate which will be considerably cheaper.
For example, HSBC’s current residential SVR is 6.99%, while in comparison they have a 5 year fixed rate at 3.76%. Alternatively, for those that don’t want to be restricted by locking into a long term deal, Barclays have a 2 year fixed at 4.08%.
There are even options for those looking for the flexibility of a tracker without an early repayment charge, such as Barclays’ tracker deal at 4.39%.
So, what should you do?
Get in touch with one of our experts at John Charcol. We’ll be able to advise you on what deals are out there and how much you could save in interest. Call us today on 0330 433 2927.
Category:Nicholas Mendes