In the last few months, the average standard variable rate (SVR) on mortgages has hit a 13-year high.
If you’re on your lender’s SVR, you’re on a deal with no early repayment charges or you’re coming to the end of your existing mortgage deal, there’s a chance that higher SVRs could negatively affect your finances and leave you facing higher repayments.
So, if your fixed- or variable-rate contract is coming to an end, or you simply want to shop around for a better deal altogether, then here’s what you should do to combat climbing mortgage interest rates.
High inflation is causing base rates to rise, which in turn is driving up SVRs
As mentioned, SVRs typically follow the Bank of England’s (BoE) base rate, which has risen in recent months in an attempt to counter rising inflation.
If inflation is high, the BoE will often raise the base rate. This makes borrowing more expensive and encourages saving over spending, which the BoE then hopes will reduce inflation.
Since December 2021, the BoE has increased the base rate five times and it now stands at 1.25%. This is the reason that lenders’ SVRs for mortgages are at a 13-year high.
Indeed, Moneyfacts states that the average SVR had risen to 4.91% at the start of June, and is now the highest it’s been since February 2009.
As you may have guessed, your finances could be negatively affected by higher interest rates, so keep reading to find out how you can combat rising SVRs and potentially save some money amid the cost of living crisis.
You are typically put on a lender’s SVR when your fixed- or variable-rate deal expires
A lender’s SVR is an interest rate set by your mortgage provider that is typically adjusted in line with the BoE’s base rate.
Usually, when your fixed- or variable-rate deal expires, your lender will put you on their SVR. These typically charge more than fixed- and variable-rate mortgage rates – in fact, lenders don’t even need to follow the BoE base rate, as they can set their SVR however they please.
So, if your existing mortgage deal is coming to an end, you could find that your repayment rises sharply when you revert to your lender’s SVR.
You may also find that your SVR could fluctuate frequently, especially if there is uncertainty in the economy and the BoE base rate is constantly changing.
Remortgaging could be your chance to get a better deal for your mortgage repayments
If you are on a fixed- or variable-rate deal, you will likely revert to your lender’s SVR when your deal ends. This will normally see your monthly repayments rise.
Figures reported by the Guardian, show that there were just over 1 million people paying their lender’s SVR at the end of 2021, and the average outstanding mortgage for said borrowers was around £76,499.
So, if your current fixed- or variable-rate deal is set to expire, or you’re already on your lender’s SVR, then you may want to think about shopping around for a new deal and remortgaging if possible.
Remortgaging to a fixed-rate deal could also provide more stability since base rates and inflation are currently uncertain and more interest rate rises are likely.
This means that, if you’re on a variable- or tracker-rate mortgage, your repayments could change frequently, unlike fixed-rate mortgages, which stay the same during your fixed-rate term.
Don’t just take a deal with your existing lender
When your fixed-, variable- or tracker-rate mortgage does expire, there’s a chance your lender will offer you a new deal.
While this may seem like the path of least resistance, this might not be the cheapest deal available to you. In this case, you may want to get in touch with us to help you find a more suitable option.
We can scour the market for you and find the most appropriate deal for your needs. And, in some cases, we can access deals that aren’t available to the general public, so we can find a more preferential rate than those otherwise available in the market.
Get in touch
As you have read, speaking to a mortgage broker can help you to find the best option when you come to remortgage.
So, if you would like more information, please email enquire@london-money.co.uk or call (0207) 808 4120 to find out more.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. Think carefully before securing other debts against your home.