Some Stuck on Standard Variable Rates

by Mark Johnston

2.3 Million borrowers are on their lenders standard variable rate. This can vary from leder to lender but the Yorkshire Building Society believes that this accounts for 30% of the UK mortgage Market.

Borrowers tend to end up on standard variable rate mortgages once their fixed term, discounted mortgaged has ended. Terms can vary as different borrowers prefer opt for various timescales but the most common are two, three and five year terms.

The Yorkshire Building Society have highlighted that the best deals in the Uk mortgage market are for mortgages that have low loan to value (LTV) ratios. These tend to be less than 85% which can mean at least a 15-20% deposit.

Many borrowers are now stuck on standard variable rates as they do not have enough equity in their homes to find a better deal. Others have historic deals that mean that they only pay a small percentage point above the base rate. With the Bank of England base rate at a record low, many borrowers are better off on the standard variable rate (SVR).

Tom Girling, a mortgage product manager at Yorkshire Building Society, said: “A record number of mortgage customers are currently stuck in ‘mortgage limbo’ on SVR rates that are generally far higher than best buy deals.

“Our analysis shows that the vast majority could make significant savings by switching to a better rate mortgage and with 80 per cent having at least 15 per cent equity in their home, they are free to switch lender right now.”

Many mortgage lenders set their Standard variable rate based on movement of the Bank of England base rate. The SVR usually tracks the base rate by between 1.5% and 3.5%. With the base rate at 0.5% a standard variable rate that tracks the base rate at 2% above would be 2.5% (0.5%+2%).

Although SVR’s track the Bank of England base rate they don’t always shift in line with base rate movements. Some lenders will delay changing their rates so an increase or reduction isn’t always passed onto the customer.

The biggest concern borrowers have with staying on their lenders standard variable rate is that interest rates will rise. As rates rise so does the SRV which increases your overall monthly repayments. This is why many prefer to fix their monthly fee by moving so they can be confident of the amount that is due in repayments per month.

Here is a list of current Standard variable rates for comparison (this data was accurate as of 16 July 2010)

Provider                       Standard Variable Rate (SVR)

RBS                                             4.00%

Nationwide                             2.5% or 3.99%

Halifax                                      3.5%

Santander                               4.24%

HSBC                                         3.94%

Barclays                                  2.99%

Leeds Building Society     5.69%

Natwest                                   4.00%

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