For many homeowners, a mortgage is a significant part of their financial landscape. It’s that monthly commitment that allows us to achieve the dream of homeownership. But did you know that how you manage your mortgage could mean the difference between spending more or saving big? In this article, we’ll take a look at mortgage rates, specifically fixed rates and standard variable rates (SVR), and explore what they are and how they can effect your finances.
Understanding Fixed Rates and SVR
Before we delve into potential savings, let’s clarify what fixed rates and SVR mean:
Fixed Rates: When you secure a fixed-rate mortgage, you essentially “lock in” your interest rate for a predetermined period, typically two, three, or five years. This means your monthly payments remain consistent during that period, providing stability and predictability.
Standard Variable Rates (SVR): In contrast, SVR is a variable interest rate set by your lender. It is not fixed and can fluctuate at any time based on market conditions and the lender’s decisions. SVR rates are notorious for being higher than the rates you initially secured during your fixed-rate period.
The Reality of SVR
27% of Homeowners on SVR: 27% of homeowners with mortgages find themselves on their lender’s SVR once their fixed-rate period ends.
High SVR Averages: On average, SVRs currently hover around a staggering 7.5%. Compared to the lower fixed rates you enjoyed, this is a substantial increase in your monthly mortgage expenses.
‘Follow On’ Rates: Some lenders may even move borrowers onto even higher ‘follow on’ rates instead of SVR, further escalating their monthly costs.
Misconception About Paying Off Mortgages Faster: Surprisingly, 1 in 10 mortgage holders believe that opting for a more expensive rate on their mortgage will lead to quicker mortgage payoff. This myth is far from the truth; it only means paying the lender more interest.
The Importance of Seeking Alternatives
- Advance Notice of Payment Changes: Lenders should provide you with advance notice of the monthly payment when your current mortgage deal is nearing its end.
Higher SVR Costs: SVRs or ‘follow on’ rates can be 2-3% higher than fixed-rate mortgages, significantly impacting your monthly budget.
Bank of England’s Role: Keep in mind that Bank of England Base Rate increases can lead to SVR and tracker rate mortgage increases, which will further inflate your costs.
Hidden Savings Opportunities: Surprisingly, many homeowners find themselves on SVR mortgages without realizing that alternative options exist.
The Broker’s Expertise: To navigate this complex landscape, it’s advisable to contact a mortgage broker 3-6 months before your current mortgage deal ends. They possess the knowledge and expertis
Overcoming Common Hurdles
Lack of Awareness: 1 in 10 homeowners are unaware of the possibility of securing a cheaper mortgage deal, unaware of the potential savings.
Resistance to Change: A survey revealed that 41% of homeowners on SVR mortgages are unlikely to switch to a cheaper deal, often citing the perceived hassle or a simple lack of consideration.
Concerns About Negative Equity: Some homeowners fear being in negative equity, where the property’s value is less than the mortgage. However, even in such cases, mortgage brokers may be able to help find a suitable lender.
A Glimpse Into the Future: Lower Mortgage Rates
In some encouraging news, mortgage rates are expected to decrease in the upcoming autumn. This decline is driven by falling inflation and decreasing swap rates, which represent the rates banks pay to borrow money. These market trends could lead to substantial savings on your mortgage payments.
Whether you’re already on an SVR or nearing the end of your fixed-rate period, understanding the dynamics of mortgage rates and exploring alternatives can potentially save you a significant amount of money. Don’t hesitate to reach out to a mortgage broker, as they are well-equipped to guide you through the ever-changing mortgage market and secure the best possible deal tailored to your needs and financial situation. Your home is one of your most valuable assets, so why not make the most of it and keep more money in your pocket?
Peter Austin
Peter is a writer and photographer with a great interest in property, design, and the economy.
