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Decoding your finances – Why being on SVR is bad for your mortgage

Typically, people re-mortgage in order to take advantage of better rates when they reach the end of a fixed-rate mortgage term, which typically lasts between two and five years. If the fixed rate period ends without them putting a new plan in place they will usually be moved to a Standard Variable Rate (SVR), which means monthly payments can fluctuate depending on the Bank of England base interest rate. Switching your mortgage can allow a return to fixed rate, keeping payments predictable and, often lower than when on SVR.

So, with the exact rate of a variable rate mortgage being dependent to a greater or lesser degree on the health of the economy a fixed rate with its predictability in times when the outlook is less than certain is likely to be the best option. 

Each lender has an SVR which they can move when they choose to. While most of these rates follow the Bank of England’s base rate movements, if the base rate is cut there is no guarantee that your SVR will drop with it. SVRs can be anything from two to five or more percentage points above the base rate, and they can vary considerably between lenders. 

Most lenders will check the affordability of the mortgage, and even “stress test” it against future shifts in interest rates. Other changes in circumstances will also affect a lenders willingness to provide a new fixed rate mortgage. 

One thing to enquire about when looking to switch from an SVR is what fees may be involved. If you are close to the end of your mortgage term you could add a significant percentage to what you owe just from the switching fee, but this is a highly unusual circumstance. The end of your existing mortgage deal could bring an opportunity to reassess what you are looking for from a mortgage provider. Doing nothing is an option that is open to you but may well be a costly one. As always, I am happy to discuss your personal circumstances. Please get in touch to discuss the alternatives available. 

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

 

You may have to pay an early repayment charge to your existing lender if you re-mortgage.

 

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