Are you paying too much for your mortgage?

27% of homeowners with a mortgage are on their lender’s standard variable rate. Could you be one of them?

When your mortgage deal period ends, you’ll normally move onto your lender’s standard variable rate.

A standard variable rate (or SVR) is usually a lot higher than your existing rate. Currently the average is averaging out at 8.65% across all lenders, and it can change at any time your lender decides.

Some lenders move you onto a ‘follow on’ rate instead, which can be even higher than their standard variable rate.

According to recent research by mortgage broker Habito, one in 10 mortgagees believe that paying a more expensive rate on their mortgage meant they’d be paying off their mortgage quicker.

It doesn’t. It simply means you’re paying the lender more interest instead.

Your lender will be able to tell you in advance what your monthly payment will be once your current deal ends.

How much more expensive is a lender’s standard variable rate?

An SVR or ‘follow on’ rate can be between 2% and 3% higher than the average five-year or two-year fixed rate mortgage.

And the lender can raise the rate at any time.

When the Bank of England increases the Base Rate (which it has done 14 times since December 2021) SVR and tracker rate mortgages may increase too, as they usually follow the Base Rate.

However there are exceptions. And some lenders have opted not to increase the rate on their SVR mortgages when the Base Rate has risen.

Your lender will always let you know what’s happening with your mortgage rate.

Current SVRs and fixed rate deals from major lenders

Let’s take a look at the standard variable rate and fixed rate mortgage deals currently being offered by some of the major lenders.

If you had a £200,000 mortgage spread over 25 years on a £250,000 property, you could end up paying several hundred of pounds more in interest each month on the lender’s SVR.

To cite Virgin Money’s rates above as an example:

On the standard variable rate of 9.49%, you’d be paying £1,746 a month.

At the two-year fixed rate of 5.14%, you’d be paying £1,185 a month.

With the five-year fixed rate of 4.64%, you’d be paying £1,127 a month.

That’s a potential difference of £619 a month, or £7,428 a year, between a lender’s standard variable rate mortgage and fixed rate deal.

Use our mortgage calculator to work out what your monthly payments could be.

Why are so many people on standard variable rate mortgages?

Habito’s research suggests many homeowners are slipping onto their lender’s SVR without even realising it or knowing that they have an alternative.

But it’s always worth contacting a broker 3-6 months before your current mortgage deal is due to end.

You can book in a new deal up to six months in advance.

And if a better rate comes up between the time you booked the deal and the time it’s due to begin, you can simply book in that rate instead.

Your mortgage broker will be the best person to advise you on what to do.

Financial concerns

One in 10 homeowners were frightened of lenders scrutinising their finances, given the current economic climate.

This is where a broker can help. They have an in-depth knowledge of the mortgage market and know the rules that different lenders operate by.

Once your broker has an understanding of your financial circumstances, they’ll know which lenders to approach on your behalf.

Unaware of mortgage alternatives

One in 10 didn’t realise it could be possible to get a cheaper mortgage deal.

A mortgage broker will scour the market for you to find the cheapest mortgage rates available to you.

Too much hassle to switch mortgages

In a recent survey by Which?, 41% of homeowners on an SVR mortgage said they’d be unlikely to switch to a cheaper deal.

They felt it ‘wasn’t worth the hassle’ or they ‘hadn’t really thought about it’.

This in part may be because homeowners with smaller mortgages are less likely to feel the financial hit when moving onto an SVR.

But when the savings can run into hundreds of pounds a month, it’s a call to a broker that’s worth making.

Fears of being in negative equity

Other homeowners were concerned that they might be in negative equity.

Negative equity is when a property you own is worth less than the mortgage you’re paying on it.

What is negative equity?

Most lenders won’t let people with negative equity switch to a new mortgage deal when their existing one ends. Instead, they’ll normally be moved onto their standard variable rate.

You can find out if you’re in negative equity by checking the balance left on your mortgage and inviting estate agents round to value your home.

If you are in negative equity, it could still be worth speaking with a mortgage broker, as they may be able to find a lender that could help.

Mortgage rates set to stay at around 4+% in 2024

In good news for homeowners and buyers, mortgage rates are now holding steady and look set to plateau at around or just over 4% for the rest of the year.

Inflation has now come down and so have swap rates – the rates the banks pay to borrow money.

Swap rates are based on what the markets think the interest rate will be in the future.

Right now, the average mortgage rate for a 5-year fixed rate at 75% loan to value has reached 4.59%, across the big six lenders.

The reduction in swap rates will take time to feed through into mortgage rates, and our Executive Director – Research, Richard Donnell, believes mortgage rates are unlikely to drop further this year.

Will mortgage rates go down in 2024?

Whether you need to remortgage now or in six months time, if your current mortgage deal is coming to an end soon, it’s well worth contacting a mortgage broker.

They will be fully up to speed on the latest mortgage market trends and current rates available.

And they are in the best place to advise you on getting the cheapest possible mortgage deal for you.