Ditch your SVR and switch NOW! Brokers urge borrowers to set expensive variable rates instead of paying after lenders raise them to a 25-year high
- Experts say borrowers should do away with standard variable rate (SVR) mortgage agreements
- They are now saying borrowers should switch to fixed or tracker rates for mortgages
Hundreds of thousands of homeowners were urged yesterday to scrap their floating-rate mortgages after lenders raised interest rates to a 25-year high.
About 773,000 mortgage holders currently have a standard variable rate (SVR), the interest rate that borrowers are charged once their first deal closes.
But experts warn borrowers should abandon these deals or risk overpaying as interest rates continue to rise in the coming months.
Currently, approximately 773,000 mortgage holders have a standard variable rate (SVR).
Rates only go one way, says Jeremy Leaf, a North London estate agent and former president of the Royal Institution of Chartered Surveyors.
He said: “Many homeowners have opted for standard variable rates in the hope that interest rates will fall sooner rather than later.
“But interest rates will stay high longer, so homeowners need to rethink their options now.”
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The warning comes after the Bank of England voted to raise its interest rate for the 13th consecutive time since December 2021 to a 15-year high of 5%.
In response, the average SVR has risen and sat at 7.52 percent last night, according to rate controller Moneyfactscompare. Eighteen months ago that was still 4.4 percent.
Meanwhile, the average two-year fixed rate agreement is currently 6.19 percent, while the five-year interest rate is now 5.83 percent.
The difference in standard variable rates has already added £389 per month – or £4,668 per year – to the bills of a homeowner with a £200,000 SVR mortgage, according to mortgage broker L&C. And homeowners can expect even more misery as experts predict the base rate will hit 6 per cent by the end of the year, adding another £204 a month to this household’s bills.
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Several lenders have already raised their standard variable rate, including Halifax, which will raise it from 7.99 percent to 8.49 percent in early August.
The last time the lender’s SVR was this high was in November 1998, when it extended home loans to borrowers at rates of 8.7 percent.
But just 18 months ago, it offered borrowers a rate of 3.49 percent. Barclays has also announced it will raise its rate to 8.49 percent following the Bank of England’s decision.
Meanwhile, Santander offers new customers a rate of 5.25 percent from the beginning of August.
David Hollingworth, from broker L&C, said: ‘Many people fell to standard variable rates when the market was uncertain, but now they could be significantly overpaying.
“While rates are rising, borrowers should consider fixed or tracker rates as they will still be much cheaper than standard variable deals.”