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Homeowners increasingly reverting to SVRs

Homeowners increasingly reverting to SVRs

Category: Mortgages

Updated: 25/01/2010
First Published: 25/01/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
Increasing numbers of homeowners are moving onto their lender's standard variable rate (SVR), reflecting a market that currently offers little incentive to opt for a new deal.

The cut in the Bank of England's base rate of interest has proved to be a lottery for those with a mortgage, as borrowers on tracker deals that reflect the measure have effectively been served a payment holiday.

Others have not been as fortunate: figures from Moneyfacts.co.uk show that the margin between the cheapest and most expensive lenders for a homeowner with a mortgage worth £150,000 is £5,670.

"Many lenders' SVRs have become disjointed from base rate, with only a fraction of the cuts having been passed on," commented Michelle Slade, spokesperson for Moneyfacts.co.uk

"Many smaller building societies have passed just a small proportion of the base rate cuts in a bid to deter borrowers from languishing on the SVR. Some borrowers on SVR may have paid more than double for the same mortgage than if they had been with a different lender."

The decision by Skipton BS to increase its SVR from 3.50% to 4.95% (effective from 01.03.10) split opinion last week, a move that vindicates the decision by other lenders not to introduce rate cuts, according to Ms Slade.

"The absence of rate cuts has been criticised in the past, but it appears to be a prudent step as other lenders such as Skipton BS have been left with no option but to increase their SVR."

This inertia has led many borrowers to shun a new deal, instead biding their time on an SVR rate. In many cases, this has proved to be a shrewd decision.

However, those choosing to revert to SVRs have been warned they could see payments rise sharply.

"Many borrowers are just looking at the here and now, and are not considering the future impact of base rate rises. When a base rate increase becomes more probable, we may see fixed rates start to rise," said Ms Slade.

"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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