When you’re approaching the end of your mortgage deal (for example, a discounted or fixed rate of interest), the general advice is to find a new deal as soon as possible.
This is so that you can avoid your lender’s “Standard Variable Rate” (SVR) – which is basically the lender’s default mortgage rate, which is usually a couple of percent above the Bank of England base rate, and tracks it up and down.
However, with interest rates currently lower than they’ve been in decades, the SVR shouldn’t now be ruled out as an option, at least in the short term.
In many cases, the SVR is close to the best deal available with a lender. Many have withdrawn their tracker rates (they’re looking to protect themselves as interest rates are expected to come down even further), and where they remain, in some cases their SVR rates are lower than the rates on the tracker mortgages.
For example, Nationwide’s SVR is 4.69%, but their tracker rates are closer to 5%. Other lenders’ SVRs are more like 5%- 5.5% per cent – still low when compared with a few years ago. Plus, new deals tend to have large arrangement fees, so this is another reason to weigh up the pros and cons of staying on the SVR.
As ever, in these situations where there is no clear best route to take, you should get some professional advice, and if your mortgage deal is ending, your first option should be to talk to an independent mortgage advisor.
Well the last few weeks has seen several interesting developments in the mortgage world.
Firstly, the Bank of England has slashed the base rate by 1.5%, meaning the base rate is now only 3%.
This should be particularly beneficial for anyone currently on a tracker but is unlikely to have a direct effect on new rates. However many lenders have passed on this cut in the form of a reduction in their Standard Variable Rates.
Secondly, as a result of the base rate cut, the 3 month LIBOR rate has been cut by 1%, now sitting at just below 4.5%.
The LIBOR rate is the rate at which banks lend to each other and will have a direct effect on the costs to the banks of obtaining funds, and therefore enable them to reduce mortgage rates.
As a result of the above, nearly all tracker rates have been withdrawn from the market to be repriced. The next few weeks should be interesting as new rates gradually begin to appear again.
But what does this mean to the individual who may be about to remortgage?
Well, two things.
Firstly, the rate that you will revert to when your current deal comes to an end, the lenders Standard Variable Rate(SVR,) will probably be much lower that it would have been a week ago. This may mean that you are better off sitting on the SVR with your current lender rather than moving elsewhere or taking another deal with them.
Secondly, we are due to see a lot of new rates coming out which may well be a lot more competitive than you were expecting. So there could be cheaper options out there.
Also, depending on how rates are repriced, it may be a good time to fix your mortgage rate, although this will depend on your circumstances.
If you are due to come out of your current deal any time soon, speak to an independent Mortgage broker. They will be able to tell you what the best deals out there are for your circumstances and tell you whether it is worth you moving at all or, as is now often the case, you are better off staying where you are.
But what about those wishing to purchase a home? They are still in a tricky spot. Without a substantial deposit, there really isn’t much available. Now you may well say that this is how it should be, and although I agree with you, this is only the case if property prices are reasonable compared to the average income.
For this to be the case, property prices still need to drop by a considerable amount. And although the central banks are assisting those who are in a precarious position with payments going up, it is these difficulties that help to put downward pressure on prices. So it seems to me that the government is in a strange predicament. Either allow prices to fall to the correct open market values at the expense of those who have over borrowed, or assist in keeping prices artificially high.