Martin Lewis warns of 'ticking time bomb' with mortgages
The Bank of England is expected to hike base rates again tomorrow to 5.5 percent. Yet some homeowners already face paying almost double that when their existing deal expires and they move onto their lender’s standard variable rate (SVR), which can vary massively.
The SVR is the rate that borrowers automatically revert to when their introductory mortgage rate ends. They charge a lot more than deals offered to new customers.
SVRs are intended to be a temporary solution, while the borrower looks for something better. In practice, many end up sitting on there for months or even years, and the cost can be punitive.
Those whose low-cost fixed rate has just expired will see their monthly repayments skyrocket as a result.
Homeowners face an “SVR lucky dip” as the UK’s largest high street banks and building societies charge rates of between 6.79 percent and 9.49 percent a year, according to new research commissioned by TotallyMoney.
The impact can be huge.
Take the case of a homeowner with a £200,000 mortgage paying two percent a year on a fixed rate they took out before interest rates rocketed.
They’ll have got used to paying interest of around £333 a month in that time (with any capital repayments on top of that).
If their lender’s SVR is 9.49 percent, their interest bill will jump to £1,582 a month. That’s a staggering £1,249 a month extra.
Which works out as almost at £14,988 a year in extra interest.
They might get lucky and have taken out a mortgage with a lender that charges a lower SVR. They’ll still pay a lot more though.
If the same borrower with a £200,000 mortgage reverts to the cheapest big lender SVR of 6.79 per cent, their monthly payments will jump from £333 to £1,132.
That’s an increase of “only” £799 a month. Or “only” £9,588 a year.
Anybody whose introductory rate expires in the months ahead should check what their lender charges.
Virgin Money has the UK’s highest SVR at a mind-blowing 9.49 percent, dramatically above today’s base rate of 5.25 percent.
If the BoE hikes by 0.25 percent tomorrow as expected, that could potentially increase to an even more punitive 9.74 percent.
Virgin is followed by Metro Bank which charges 8.75 percent, while Barclays, Lloyds and TSB all charge 8.74 percent.
Leeds and Yorkshire building societies charge 8.24 percent.
At the other end of the scale, Skipton Building Society has a lower SVR of 6.79 percent and HSBC charges 6.99 percent.
Most of these SVRs are likely to climb higher if the BoE does hike base rates tomorrow, as I fear it will.
Yet at the same time, banks and building societies now offer mortgages to new customers charging less than five percent, as they compete to win new business.
Just under 700,000 homeowners are currently on an SVR, less than one in 10 of all mortgages. However, their numbers will grow with up to a million fixed rates due to end in the second half this year.
Unless they quickly shift their debt onto another introductory fixed or discounted rate, they will hand over huge sums in extra interest.
TotallyMoney chief executive Alastair Douglas said banks are free to set SVRs at any level they choose and hike them at any time. “Anybody rolling off their introductory offer and onto their lender’s SVR will be in for a real shock.”
Borrowers should start hunting around for a new deal several months before their fixed rate expires, so they can switch seamlessly without going near their lender’s SVR.
If struggling to pay, talk to your lender Douglas, added. “New rules mean banks must act in the best interest of their customers and provide flexibility, say, by reducing monthly payments or letting customers extend the term of their agreement. It’s free and won’t impact your credit score.”
Andrew Hagger, personal finance expert at MoneyComms, who carried out the SVR research, said the variation in pricing is wider than many consumers realise. “When taking out a new mortgage always check the SVR, to see how much you will pay when the introductory rate expires.”
And if you do get bumped onto a sky-high SVR, get off it as fast as you can.
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