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Sitting uncomfortably on your SVR? Then remortgage

Sitting uncomfortably on your SVR? Then remortgage

Category: Mortgages

Updated: 06/06/2017
First Published: 08/12/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Back in 2013, the Funding for Lending Scheme (FLS) had a major impact on the mortgage market. It led to the introduction of what were, at the time at least, the lowest rates we'd ever seen, particularly for two-year fixed deals, and that led to a rush in borrowers seeking to fix.

However, those who snapped up these deals are now coming to the end of their fixed terms, which means that many will soon start paying their providers' revert rate, otherwise known as the standard variable rate (SVR). But this could be a big mistake, as our data shows that by sitting on the revert rate, borrowers could potentially see their repayment costs shoot up by almost £3,500 a year.

The table below highlights this in more detail:

Lowest Two-Year Fixed Rates in Dec 2013
Lender Rate details Revert to Rate Monthly repayments on the fixed deal Monthly repayments on the revert rate Difference (monthly) Difference (yearly)
West Brom BS 1.48% Fixed to 30/11/2015 3.99% £797.99 £1,054.57 £256.58 £3,078.96
HSBC 1.49% Fixed to 31/03/2016 3.94% £798.93 £1,049.06 £250.13 £3,001.56
Post Office Money® 1.63% Fixed to 31/12/2015 4.49% £812.15 £1,110.53 £298.38 £3,580.56
Halifax 1.64% Fixed to 29/02/2016 3.99% £813.10 £1,054.57 £241.47 £2,897.64
Tesco Bank 1.64% Fixed to 31/12/2015 4.24% £813.10 £1,082.36 £269.26 £3,231.12
Compiled: 8.12.15

NOTE: Calculations and repayments are based on a £200,000 mortgage over a 25-year term on a repayment basis only andexclude any fees.

As you can see, the difference is marked. Those coming to the end of their fixed rate deal could see their monthly repayments rise significantly if they took the "simple" route and reverted – but alternatively, given how low mortgage rates are at the moment, they could save a small fortune by remortgaging.

"Borrowers may be shocked by the jump in cost of their monthly repayments when their fixed rate deal ends, particularly if they took advantage of one of the plethora of low rates available in 2013," said Charlotte Nelson, finance expert at Moneyfacts. "The difference between the initial rate on the deal and the revert rate can be quite dramatic; for example, borrowers who opted for West Brom Building Society's two-year deal in 2013 may find that the cost of their repayments has now increased by an extra £256.58 a month.

"With the average SVR standing at 4.82% today, it's easy to see why repayments at the end of a fixed deal increase by so much. However, borrowers don't have to put up with these high costs; mortgage rates are still resting at record lows, which means there has never been a better time to remortgage to a new fixed rate."

Not only will this mean that borrowers can secure themselves a cheaper deal, but they will also buffer themselves from any base rate rises within the fixed rate term, and with a rate rise inevitable at some point, now could be a truly great time to fix. Don't let the changes that have occurred since the Mortgage Market Review put you off, either: the process may be different and the requirements stricter, but as long as you get your finances in order before you apply for a new deal, there's nothing to worry about.

So what are you waiting for?! "If you are considering remortgaging to a low cost deal, act now to avoid disappointment, and remember to note the end date of your mortgage offer," concluded Charlotte. "This way, you can evaluate the market ahead of time and ensure you do not find yourself sitting uncomfortably on a high SVR in the future."

What next?

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.