SVRs now more expensive than fixed rates -time to switch?

Published on 16th February 2010

Over 85% of Lenders standard variable rates (SVRs) are now higher than the cheapest fixed rate which means many Contractors could be paying over the odds for their mortgage.

Since the credit crunch triggered an unprecedented drop in the Bank of England base rate to 0.5%, we have had the unusual situation whereby the Lenders SVRs have invariably been at a lower level than the fixed and tracker rate mortgages available to borrowers. This has left many Contractors better off doing nothing and remaining on the SVR whereas they would have been desperate to remortgage to a better rate two years ago. However, the tide seem to be turning as many institutions are increasing their SVRs to further improve margins and in response to market anticipation of a forthcoming rise in the base rate.

For the first time since the downturn began we are beginning to see fixed rates that are better than the SVRs offered by most lenders and as such remortgaging is again becoming popular amongst Contractors. If you are currently on your lenders SVR then the following could make interesting reading.

The Woolwich comes up trumps for Contractors!

Our special contract-based underwriting with the Woolwich means that we have access to very competitive rates at present. The good news is that Woolwich offer free legal and valuation fees on many of their remortgage schemes.

If you have 30% equity in your home, Woolwich are offering a tracker mortgage at base rate plus 2.13% (so the current pay rate is 2.63%) for the term of the mortgage with no penalties for full redemption after the first 2 years. The scheme allows overpayments of up to 10% per annum within those first 2 years (nb unlimited thereafter) and there is also flexibility in terms of a redraw facility (subject to the availability of a reserve) whereby you can take money back out of the mortgage debt that has been repaid at the lenders standard variable rate. This offers you an alternative to an expensive overdraft or personal loan and you can use the funds for whatever purpose you choose. The scheme has an arrangement fee of £999 that can be added to the mortgage. They also offer the same scheme at 2.99% with no fee's which would make switching to this rate even cheaper.

If you have a 40% deposit then Woolwich have recently launched one of their lowest ever pay rate deals. The scheme is at base rate plus 1.48% (currently 1.98%) for the first year followed by base rate plus 2.49% for the term of the mortgage with redemption penalties until 31/01/2013. The scheme offers free legal and valuation fees and the £999 arrangement fee can be added to the mortgage. As above you can overpay by up to 10% per annum without penalty until 31/01/2013, and unlimited thereafter.

However, if the chance of the base rate rising in the near future is making you uneasy then a fixed rate mortgage may be the answer. Traditionally these carry higher rates because lenders try to cover themselves against the base rate rising during the term of the mortgage. Despite this, there are a number of great fixed mortgages available at the moment for Contractors with a 30% deposit and again Woolwich are very competitive offering 2 years at 3.89% with a £199 fee. This is only beaten by 13 out of 85 SVR deals available at the moment.

Don't go direct!

You could obviously approach a lender direct to process your application but then run the risk that a poorly motivated branch adviser or call centre telephonist will misinterpret your Contractor status.

We charge no mortgage broker fees for our services so you have nothing to lose but a lot to gain. We handle the whole process from initial advice to application and speak to key decision makers on your behalf to ensure that your remortgage is completed with a minimum of fuss and delay.

Sadly we have had to try and pick up the pieces for clients who come to us after having unsuccessfully applied for a loan and at this stage it is very difficult for us to undo the damage done.

Do your sums

If you are on your lenders SVR then it may be worth considering switching to a new fixed or tracker rate mortgage to benefit from the lower rates available. However, it is important to do your sums properly before making the jump as some lenders charge expensive fees for remortgaging.

Two of our mortgage advisers Simon Foster and Emma Chainey are on hand to help and are experts at finding the right deal to suit your Contractor status. If you are considering remortgaging and wish to discuss your options or simply want to know what else is out there then give us a call.

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