Millions of standard variable rate mortgage borrowers are
this week bracing themselves for a widely tipped quarter
per cent rise in the Bank of England base rate. Taking the
base rate to 4.25% would add around £20 a month to
repayments for a homeowner with an average £150,000
mortgage.
But whether the MPC gives the green light to an increase
or decides to hold off for another month, Peter Barrett
of MyMortgageDirect argues that we are now in a rising interest
rate environment – and it’s only a matter of time
before any borrower paying the standard variable rate will
feel the pinch.
"If you are in an SVR arrangement all you are doing
is delaying the pain for a few more weeks. Because all the
evidence points to rates ending this year significantly
higher than they are at present," says Barrett.
Worrying new research undertaken by MyMortgageDirect shows
UK mortgage borrowers are overpaying by a phenomenal £2.5
billion a year – purely because they have not bothered
to switch from expensive and outmoded standard variable
rates to one of the many discounted products now sweeping
the market.
"One in two of all the UK’s 11.5 million mortgage
accounts are being repaid at a typical SVR of 6.04%, reflecting
High Street mortgage lenders’ mark up from the 4% Bank
of England base rate," says Barrett.
"And yet the typical homeowner with a £120,000,
25 year mortgage would make an annual saving of just over
£1,700* simply by tracking down one of the many loans
discounted to 4%and under – they would be mad to stay
in an outmoded SVR deal," he points out.
"It is incredible when you think about it," says
Barrett. "In most cases, borrowers who are not tied
in to their existing deal would save a huge amount of money,
often just with a simple phone call.
"Our research has highlighted the typical homeowner
with a modest – in today’s terms at least –
loan. Yet as we know, if you live in more expensive parts
of the country like London and the south east, the average
loan size is considerably higher.
"By staying on the standard variable rate – which
is basically a dinosaur loan structure far more suited to
maximising a lender’s profits than benefiting the borrower
– millions of UK homeowners are ensuring that they
lose many thousands of pounds over the life of the loan,"
adds Barrett.
According to the latest figures from the Council of Mortgage
Lenders (CML), the UK mortgage market was worth £776
billion at the end of 2003. While there are 11.5 million
mortgage accounts, the majority of these are joint accounts
and the CML puts the total number of UK mortgage holders
at around 20 million.
"It suits lenders to keep existing customers on the
artificially high standard variable rate," argues Barrett.
"And while most discounts are for a two year period,
the days of lengthy tie ins and penalties are behind us
if you take advice from MyMortgageDirect
"We are still in a historically low interest rate
environment and those paying much over 4% are basically
being taken for a ride: the major lenders should be putting
out regular bulletins advising their mortgage customers
that much keener rates are available. And matters of course
become more urgent as we have moved into a rising interest
rate climate," he says.
Apr 07 2004
Source: MyMortgageDirect
