Most SVR borrowers ‘should consider switching'

Hundreds of thousands of mortgage borrowers currently sitting on their lenders' Standard Variable Rates (SVRs) could benefit financially from moving their mortgage to a new deal and/or lender.

That is the conclusion drawn by price comparison website moneysupermarket.com.

It points out that, with a number of building societies, including Skipton and Norwich & Peterborough, raising their SVRs, and more expected to follow suit, now is the time for many to remortgage.

Hannah-Mercedes Skenfield, mortgages channel manager at moneysupermarket.com, said;

“Since the start of the credit crunch the remortgage market has, essentially, been closed. Most borrowers on SVR had been enjoying a better rate than that on offer to new borrowers and the increasing of LTV criteria meant people couldn't remortgage anyway.

“Over the last month or so we've seen the market shift. SVRs have increased, rates for new borrowers have been falling and we've seen an increase in the availability of mortgages even at higher LTVs. The remortgage market is open for business once again.”

Many borrowers on SVRs are discouraged from switching to a new deal as they invariably have to pay an arrangement fee to do so. These fees typically range from around £499 to £1499.

However, if borrowers do their maths, they might find that the cost of the fees is recouped fairly quickly if the interest rate is right.

For example, moneysupermarket.com figures show that the best two-year fixed rate mortgage on offer is a 3.29% deal from First Direct, which comes with a £998 fee. Over two years, the real cost of the mortgage over two years works out at 3.8%, which is only beaten by 13 out of 85 SVR deals.

For borrowers looking at a tracker mortgage, moneysupermarket.com’s said the best deal is Alliance & Leicester’s two-year offering, priced at 2.49% with a £995 fee.

The true cost of this deal over two years is 3.07% – which beats all but seven SVR deals currently available.

Skenfield said: “In some ways the case for a tracker mortgage over an SVR deal is even more compelling than for a fixed rate. The only reasons you might consider staying on an SVR over a fixed rate is either your current SVR is cheaper than the best fixed rate deal or that you believe SVR rates will remain low for some time to come – recent increases show this may no longer be the case for many borrowers.

“Neither of these arguments really applies to tracker mortgages, with only seven cheaper SVR deals than the best tracker it is unlikely you are making a saving by remaining on your current SVR deal.

"And if SVRs are going to remain low for a while, then the same can be said of trackers. In fact the added value of a tracker is that lenders can’t re-price them independently of a static Base Rate – something which is already happening with SVRs.

“In short, if you believe rates will be going up shortly and want the security of a fixed monthly payment you’re best to fix now; and if you believe they’ll be staying low for a while, you may be best to move on to a tracker. Either way you’ll be lucky to be on an SVR that’s worth sticking with. ”