There is little incentive for borrowers to remortgage at the end of a fixed or discounted period if the alternative is a lender’s cheap SVR with no arrangement fee, no early repayment charges and no stipulated LTV.
With many economists agreeing that interest rates are unlikely to start rising until next summer, it is understandable why most borrowers are choosing to stay put for now.
This is costing lenders serious money.
Nationwide says the cost of borrowers sitting on its Base Mortgage Rate (BMR) was £300m in the first half of this year.
Some 40% of Nationwide’s borrowers are now on BMR because it promised not to charge more than 2% above Bank base rate, back in the days when the thought of interest rates at 0.5% for 20 months – and beyond – was inconceivable. As these borrowers are paying just 2.5%, it is understandable why they are reluctant to move onto a more expensive fixed rate.
Lenders are trying to cut costs. Halifax is the latest to move away from its cheap-as-chips SVR, introducing a higher rate for new customers when they come off a fix or tracker.
Instead of 3.5%, the rate existing Halifax customers pay at the end of their deal, new customers will pay 3.99%. To confuse matters further, Halifax is re-naming its SVR the Homeowner Variable Rate.
Due to Nationwide’s BMR being so low, it introduced a higher rate for customers who took out a new mortgage after 29 April 2009. They go onto a BMR of base rate plus 3.49% at the end of their deal, not 2.5%, as Nationwide tries to minimise the damage.
C&G has also introduced a SVR for new customers of 3.99%, while existing customers enjoy 2.5%.
Rising SVRs are bad news for borrowers but an opportunity for brokers. If borrowers realise that SVR is not the best option, more are likely to seek advice about remortgaging, rather than staying put at the end of a fix or tracker.
There are still some incredibly cheap remortgage rates available so there are options for clients, particularly those with sizable amounts of equity in their homes.
Melanie Bien is director of Private Finance
