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CONSUMERS BECOME PROFIT-FODDER AS BANKS INCREASE INCOME BY 120 PER CENT

It’s a clear case of buyer beware as four out of ten people 42 per cent will come off a fixed rate mortgage this year and risk falling prey to inflated Standard Variable Rates SVR being offered by the majority of mortgage lenders.

 

The exclusive research and analysis carried out by leading comparison site, Moneyextra.com shows that the current average SVR is a staggering 4.19 per cent above base rate, compared to only 1.9 per cent in Q2 2008, representing a colossal 120 per cent rise in income.

 

However the majority of people surveyed are oblivious to the meaning of SVR and its impact on their finances, with a whopping 85 per cent ignorant to the actual definition of the term. Amusingly, one cited the meaning of SVR as ‘Saving for Retirement’.

 

Once explained, over a third of people 32 per cent whose fixed mortgages are ending soon, are unaware that the current average SVR is more than 8 times higher than the base rate 0.5 per cent. The research indicates that customers possess a misguided sense of loyalty towards their lender and trust them to adjust SVR’s inline with the base rate; however in reality banks have intentionally held their SVR’s proportionally high.

 

On average, people think their lenders SVR is 1.77 per cent which is in stark contrast to reality.  Only 5 per cent of people surveyed had any idea that the average SVR is currently between 4 and 4.5 per cent.  Compared to this time last year, the average SVR was 6.9 per cent or 1.9 per cent above the base rate.

 

Six out of ten 64 per cent mortgage holders are concerned what will happen to them and their finances once their fixed deal comes to an end.  A third 33.5 per cent has suffered a recent drop in income or is unemployed and are consequently worried about being saddled with their lenders high SVR.  One in ten believe their poor credit rating will put them at risk of securing a new mortgage deal, another 17 per cent cite high personal debt on credit cards and loans as creating an additional pressure, and ten per cent are struggling with negative equity.  

 

Richard Mason, managing director at Moneyextra.com said: “Typically, SVR’s from prime lenders are never normally higher than 1 or 2 percentage points above bank base rate, however some SVR’s are currently as high as 5.99 per cent. In the last twelve months, lenders have increased the differentiation between the base rate and their SVR’s by an average 120 per cent. Such a high-margin is unheard of and it’s scandalous that lenders are allowed to continue fleecing their customers. It’s not unreasonable for mortgage holders to expect that if the base rate drops, so too will their lender’s rates decrease – however current SVR’s are entirely out of proportion and we implore the banks to bring down their extortionate lending rates to a level that is fair and just to the consumer. We urge all customers who are coming off fixed rates to clean up their credit record and shop around for a good deal.”

 

Mason offers his top tips to unsuspecting homeowners:

  1. Make sure you are aware what your mortgage rate is and when it ends so that you can move onto another discounted rate as soon as possible.
  2. Clean up your credit record – currently there are only 27 mortgage deals available to buyers who have less than 10% deposit; however you’ll need a good credit history to take advantage of one of them.
  3. If you are struggling to get credit why not consider getting a guarantor or sharing with siblings or friends. Pooling your money will enable you to get a better mortgage deal.
  4. Always shop around – if you have a reasonably sized deposit, lenders are typically more flexible and can offer great incentives.
  5. There are still some good deals to be had, Alliance and Leicester are offering a fixed rate mortgage at 3.49 per cent for a 25 per cent deposit.
    Search the market and compare mortgage rates
    Tables from Moneyextra.com 18th May 2009 showing the lowest rate for a fixed product mortgage

Mortgage comparisons based on £180k property price, 20% deposit, 25 year term, repayment

mortgage.

Lender

Rate

Monthly Payment

Rate Type

Duration

Total Fees

Early Repayment Fee

Scottish Widows Bank

5.79%

909.40

Offset Fixed

Until 31-03-2011

£250

£195 plus 3% of the outstanding balance until 31/03/2011

Cheltenham and Gloucester

5.89%

918.14

Fixed

Until 31-08-2011

£1129

3% until 31-08-2011, 2% until 31-08-2011

 

 

Mortgage comparisons based on £180k property price, 25% deposit, 25 year term, repayment mortgage.

Lender

Rate

Monthly Payment

Rate Type

Duration

Total Fees

Early Repayment Fee

Alliance and Leicester

3.49%

675.12

Fixed

Until 31-07-2011

£3050

£295 plus 3% until 31-07-2011

 

Mortgage data from Moneyextra.com correct as of 14th May 2009 showing the SVR rate of mortgage lenders

 

Lender

SVR

 

Bank Base Rate

0.50

1

Cheltenham and Gloucester

2.50

2

Intelligent Finance

2.50

3

Lloyds TSB

2.50

4

Nationwide Existing Customers

2.50

5

First Active

2.79

6

Skipton Building Society

3.50

7

Halifax

3.50

8

HSBC

3.94

9

Nationwide New Customers

3.99

10

Scottish Widows Bank

3.99

11

NatWest

4.00

12

Royal Bank of Scotland

4.00

13

Abbey

4.24

14

Newbury Building Society

4.45

15

Clydesdale Bank plc

4.59

16

Ecology Building Society

4.65

17

National Counties

4.69

18

Coventry

4.74

19

Buckinghamshire Building Society

4.75

20

Progressive Building Society

4.75

21

Northern rock

4.79

22

Bank of Scotland

4.84

23

BM Solutions

4.84

24

Manchester Building Society

4.84

25

Norwich and Peterborough

4.85

26

Earl Shilton Building Society

4.95

27

Woolwich

4.99

28

Alliance and Leicester

4.99

29

Ipswich

4.99

30

Principality

4.99

31

Monmouthshire

4.99

32

Tipton and Coseley

4.99

33

Scottish Building Society

5.04

34

Dunfermline

5.19

35

Mansfield

5.24

36

Bath Investment Building Society

5.25

37

Accord Mortgages

5.34

38

Standard Life Bank

5.34

39

Saffron Building Society

5.39

40

Furness Building Society

5.44

41

Leeds Building Society

5.49

42

Market Harborough

5.49

43

Marsden Building Society

5.49

44

Hinckley and Rugby

5.64

45

Chelsea Building Society

5.79

46

Darlington

5.95

47

ITL Mortgages

5.99

48

Newcastle Building Society

5.99

49

Nottingham Building Society

5.99

 

Average SVR

4.69

 

Average SVR above base rate

4.19

 

Moneyextra.com recommends you take independent financial advice before acting on any article

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2009-05-22 10:32:41 © Moneyextra.com

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