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Borrowers facing potential mortgage timebomb

It's not always safe to stay on your lender's SVR

Mortgage red house

Many borrowers are concerned about future base rate rises

New research from the Council of Mortgage Lenders (CML) shows that many mortgage borrowers on a standard variable rates (SVRs) are paying much less than they were under their previous fixed rate deals.

However, a recent study by Which? revealed that staying on a lender’s SVR isn’t the right choice for everyone.

Many SVRs lower than original mortgage rates

The CML figures show that around 1.8 million mortgage holders whose fixed rate deals have come to an end are currently on their lender’s standard variable rates. 

And on average, these borrowers are paying around £2,600 a year less than they were under their previous, fixed rate deals.


Of the 1.8 million people identified, the CML figures suggest that over half now have more than 10% equity – and could potentially remortgage if they wanted to.

That said, it seems that many are adopting a ‘wait and see’ approach, as experts continue to speculate about when the Bank of England base rate may eventually rise.

Would you struggle if interest rates rose?

When Which? recently analysed the mortgage market, however, it became clear that many would struggle if faced with any increase in the base rate. Our research indicated that an increase of just £50 a month in mortgage repayments would have an impact on three quarters of mortgage holders. 

Some 37% would need to cut back on regular spending, 20% would reduce the amount they save, and 9% would not have enough for essentials. As lenders are entitled to raise their SVRs at any time, this could put cash-strapped borrowers in a very vulnerable position. 

For example, Lloyds has just announced that from November 1st it is going to increase its SVR for borrowers with mortgages from its Bank of Scotland and The Mortgage Business (TMB) intermediary brands.

Not playing fair

Back in June, we found that 95% of lenders failed to fully pass on cuts in the base rate to their SVR mortgage customers. And more than a fifth of lenders were found to have increased their SVRs since the base rate hit an all-time low of 0.5%, in March 2009.

So, it’s not surprising that when questioned by Which?, four in 10 mortgage holders didn’t think banks and other mortgage providers should fully pass on to their customers any rise in the base, either.

Greater stability needed

This week, Housing Minister Grant Shapps called on lenders to encourage greater stability in the housing market, by offering longer-term fixed rate mortgage deals lasting as much as thirty years.

Speaking at the Building Societies Association’s Annual Mortgage Seminar in London, he proposed the measure to help families on tight budgets know exactly how much they will be paying for their home in the future – no matter what happens to interest rates.

Where to get help

Anyone worried about how they will cope with rising costs should seek advice early. Talking to their lender and getting independent debt advice – especially if they have other debts too – will give them the best chance of avoiding bigger problems later.

There is free, independent advice available from organisations like Shelter, Citizens Advice, National Debtline, Payplan and the Consumer Credit Counselling Service (CCCS).

More on this…

  • Best mortgage rates – we round up the best deals around
  • How to buy a house – what to expect, and the questions you should ask
  • Mortgage calculator – Work out how much you can afford to borrow
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