Variable Rate Mortgages
With mortgage rates at their highest in 15 years, we look at why it is important to plan ahead.
If you are about to come off a Fixed Rate mortgage and you are moving to a standard variable rate (SVR), you could find yourself paying a lot more money each month; SVR’s are very high at the moment. Every lender has their own SVR and for existing customers this may be the rate your mortgage will move on to when your current mortgage product expires.
The SVR is fixed by the mortgage lender, but it is variable which means that it can change from month to month and your mortgage repayments would also be changeable. The SVR has historically been more expensive than a fixed rate and usually reflects any changes in the Bank of England base rate, so if the base rate goes up, the SVR often goes up as well, but not always.
Planning ahead with rates is a smart move in the current market, to avoid accidentally ending up on an SVR, so ensure you know if you are on a product with an expiry date, and if so when it ends. Whilst SVRs are currently around a whopping 8.98% [1], discount and tracker rates are relatively low in comparison at around 5.15% [2]. If you know that your mortgage term is due to end within the next six months, now is a good time to start researching your options with a Mortgage Adviser.
The difference between a tracker rate and a discount rate is that a tracker rate is directly aligned to the Bank of England base rate, whilst a discount rate (and SVR) is set by the lender. This means that if the Base of England base rate increases by 1%, a tracker rate will also increase by 1%. Whereas a discount rate, which is essentially a discount off the lender’s SVR, doesn’t necessarily have to increase by that 1%. Instead, the lender decides where they want to change the SVR (if at all), which is influenced by the lender’s attitude towards risk, what they have already factored in and other environmental factors.
That being said, it is quite common that a lender does vary their SVR around the time when the base rate changes, but they don’t have to, and they don’t have to stick to a set percentage increase/decrease month on month; the unknown of the rate going up or down is a risk of a discount rate or SVR.
Remember that a SVR mortgage is one where your previous term has ended and you have automatically rolled onto the SVR and therefore, it is more than likely that your rate is far higher than a discount, tracker or fixed rate. This is the main reason why it is essential to get your remortgage rate agreed in plenty of time so you can avoid getting caught up in a potentially higher rate than you need to.
In the current climate and with increasing interest rates, a discount or tracker rate will likely have a more favourable rate than a fixed rate and all will be likely to be far lower than the lender SVR. It is important to seek professional mortgage advice, especially in challenging economic times, and the team at Downton Mortgages & Financial Services is here to assist you and get you the best mortgage options available to you, based on your personal circumstances.
If you’d like more information on the mortgage products available, please arrange an initial no cost 30-minute discovery call to see how Downton Mortgages & Financial Services can help you.
Please note for all mortgage products, terms and conditions apply. This information is a summary only. You will receive full documentation upon application which sets out the terms, conditions and limitations of lending provided.
The information contained within was correct at the time of publication but is subject to change.
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