- Experts say borrowers should ditch standard variable rate (SVR) mortgage deals
- They now say borrowers should switch to fixed or tracker rates for mortgages
Hundreds of thousands of homeowners were yesterday urged to ditch their variable rate mortgages after lenders hiked rates to a 25-year high.
Around 773,000 mortgage-holders currently have a standard variable rate (SVR) deal, which is the interest rate that borrowers are charged once their initial deal comes to an end.
But experts are warning that borrowers should ditch these deals or risk paying over the odds as rates continue to rise in the coming months.
Rates are only going one way, said Jeremy Leaf, a north London estate agent and a former Royal Institution of Chartered Surveyors residential chairman.
He said: ‘Many homeowners have opted for standard variable rates in the hope that interest rates will come down sooner rather than later.
‘But interest rates are going to remain higher for longer so homeowners should now reconsider their options.’
The warning comes after the Bank of England voted to increase its rate for the 13th consecutive time since December 2021, to a 15-year high of 5 per cent.
In response the average SVR has risen and last night sat at 7.52 per cent, according to rate scrutineer Moneyfactscompare. Just 18 months ago, it was at 4.4 per cent.
The average two-year fixed rate deal, meanwhile, is currently at 6.19 per cent, with five year rates now at 5.83 per cent.
The difference in standard variable rates has already added £389 a month – or £4,668 a year – to the bills of a homeowner with an SVR mortgage of £200,000, according to mortgage broker L&C. And homeowners may be in for more misery as experts forecast that the base rate will reach 6 per cent by the end of the year, adding a further £204 a month to this household’s bills.
Several lenders have already hiked their standard variable rates, including Halifax, which will raise it from 7.99 per cent to 8.49 per cent at the beginning of August.
The last time the lender’s SVR was this high was in November 1998, when it gave borrowers home loans at rates of 8.7 per cent. Yet just 18 months ago it was offering borrowers a rate of 3.49 per cent. Barclays has also announced that it will increase its rate to 8.49 per cent following the Bank of England’s decision.
Meanwhile, Santander will offer new customers a rate of 5.25 per cent from the beginning of August.
David Hollingworth, of broker L&C, said: ‘Many people drifted on to standard variable rates when the market was uncertain, but now they could be paying substantially over the odds.
‘Although rates are rising, borrowers should consider fixed or tracker rates as they are still going to be much cheaper than standard variable deals.’
