Mayday SVR Hike to Impact Thousand of Borrowers
From the 1st May many UK mortgage borrowers will see an increase to their monthly outgoings, as lenders claim that the cost of funding historic low lending is forcing the uplift to standard variable rates.
As previously published in the press in April, Halifax are due to increase their SVR by 0.49% to 3.99%, but they are not alone as many other high street banks have since disclosed plans to follow suit. Although the Bank of England has not increased the base rate since it reduced this to 0.50% in 2009, Yorkshire and Clydesdale Banks, along with Bank of Ireland have confirmed plans to raise their standard variable rate of borrowing come the turn of the month.
Mortgage lenders are justifying the impetus to increase mortgage rates on the increasing cost of funding in the current market. Traditionally, lenders rely on the funds produced by mortgage repayments, booking fees charged to set up the loans and savings deposits to aid in funding. The biggest re-source, however, is purchasing funds from the money markets, and ultimately it is the price of these funds that is the major factor when lenders plan potential costings on each mortgage product. The ever increasing cost in this area is currently to blame, according to the banks, for the coming rise to their standard variable rates.
The reality for some may be that there aren't any alternatives than to stay on the increased SVR's. Many lenders have decreased their maximum loan to values on available products to prohibitive levels, which could block a rate switch for many borrowers. Along with other lenders in the market, Clydesdale and Woolwich have also taken steps to reduce the maximum acceptable borrowing level for interest only mortgages in some cases to as low as 50% of the properties value. This could mean that borrowers unable to pay off a lump sum or move to a capital and interest repayment loan to pay off the debt are stuck.
Although it may initially appear costly to do so, moving the mortgage onto a longer term fixed rate may stave off potential headaches come the change in May, and ward against further rises in the future. Andy McBride, Sales Director at Contractor Mortgages Made Easy had this to say: "Some borrowers may find that this change does not impact them, as they continue to enjoy cheaper SVR's in the region of 2.5%. However, if your rate is set to rise to 4% or more, switching to a fixed rate for at least 2-3 years could save a couple of thousand pounds for the sake of paying a one off fee to the lender to arrange. And don't be put off by moving to another lender; most providers now offer a free legal service and property valuation to remortgage with them, saving at least £1000 in up-front costs."
Because of the impending rise, it is more and more important to periodically carry out checks on whether staying on the standard variable rate is the most cost efficient option. Steven Clements, a Senior Mortgage Consultant at Contractor Mortgages Made Easy says: "To stay ahead, it is vital for borrowers to maintain an eye on the market. The chance of rates decreasing below current levels is highly unlikely, and it would be a wise move to check the market for an alternative now before rates increase any further."
Article by: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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