Almost half of homeowners are on their provider’s Standard Variable Rate (SVR) and could make savings of up to £5,000 by switching to a new fixed rate deal, according to new data from Experian.

The credit reference agency revealed the number of mortgage holders on an SVR mortgage has increased to 46% during the UK lockdown period.

The figure has risen by 2% since March, when Experian reported 44% of homeowners had switched on to their provider’s SVR.

Moving on to an SVR can be financially damaging at the best of times as the interest rates on these mortgages are often higher than introductory offers – sometimes more than double. But now, as many households struggle with the financial aftershocks of the COVID-19 pandemic, this rise in homeowners on their providers SVR is even more worrying.

The advantages and disadvantages of a Standard Variable Rate Mortgage (SVR)

The advantages

  • SVR mortgages tend not to have an Early Repayment Charge, providing the flexibility to pay off your mortgage quicker or switch to a new mortgage deal without penalty.
  • If lenders have a low SVR,  monthly repayments will also be comparatively low.

The disadvantages

  • Standard variable rates are usually higher than the rates offered by other types of mortgage.
  • SVR mortgages are a bit of risk. Interest rates continuously fluctuate, they are just as likely to go up as they are to go down. This can mean homeowners paying thousands more than they need to.
  • Lenders can choose to change their SVR at any time. This can mean monthly repayments could suddenly increase without warning.
  • In recent years, it has come to light that many people with an SVR mortgage have been overcharged. Despite a reduction in borrowing rates, SVRs have been kept at a constant level or have even increased without any justification.

Standard variable rate vs fixed-rate mortgages

  • A standard variable rate mortgage offers flexibility, as it is possible to remortgage or change lenders without facing a fee. However, the amount homeowners pay in interest each month can change, so borrowers need to make sure they can afford the rate even if it increases in the future.
  • For certainty over interest payments, it’s best to opt for a fixed-rate mortgage, where the rate will be set for an agreed period (often two or five years).

On the whole, it pays to switch to a new fixed rate.  Take the example below to see how much can be saved.

A homeowner with a £150,000 20-year mortgage loan on a typical lender’s SVR of 4.44% will have a monthly repayment of £944. The same mortgage on a typical two-year fixed rate remortgage deal of 1.14% will have a monthly repayment of £699, representing a saving of £5,880, or £245 per month.

Taking the arrangement fee of £999 into account, Experian highlighted that this would still leave a homeowner better off by £4,881 over the period of the offer.

For mortgage holders on a SVR (Standard Variable Rate), these are often 3% higher than the best rate. It can be easy to switch and move to a better deal.

Interest rates and fees for fixed mortgages are slowly increasing as the credit market reopens. Therefore, homeowners should review their mortgage now and take advantage of competitive interest rates while they can still lock in a lower fixed monthly payment, giving them peace of mind and certainty for the months ahead.

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.