Why stick on standard variable rate mortgages ?
With many clients coming to the end of their current deals it is often appealing to revert back to the standard variable rate.
Jason Legg from Property Finance has come up with a list of reasons why you may not want to stay on the standard variable rate.
- HOUSE PRICES ARE REDUCING - A further 10% reduction is forecast by the third quarter of this year. Most lenders have interest rates tiered at 60%, 75%, and 85%. Ifyou wait to remortgage, this could end up costing money as your loan tovalue (LTV) increases and the mortgage falls into the next tier ofproducts.
For example: A client currently at 75% LTV decides to wait to remortgage. Hedecides three months later to apply and then discovers his LTV is 80%.On current deals, this could mean an increase of up to 2.3% in theinterest rate or £2,300 per year on a £100,000 mortgage.
- RATES ARE LOW – Currently there are a whole host of low fixed rates available. Therates are lower than they have been historically. Fixing at these ratesensures that you can budget accurately and will not experience anypotential increase when base rates go up! It may cost slightly more in the short term, but over the term it could save you a lot of money.
- BASE RATE WILL INCREASE IN THE FUTURE – If base rate can fall by 1.5% then it can rise by 1.5%. If you elect to remain on the standard variable rate then potentially you will experience a rise. By this point, you will have missed out on the low deals that are currently available.
- WILL LENDERS PASS ON FURTHER CUTS? – Until now the majority of lenders have passed on the base rate cuts but will they continue to do so? Severallarge lenders have already intimated that they won’t pass on furtherbase rate reductions and in the recent one, some only passed on a smallproportion of the cut which may be an indication that rates arebottoming out.
- ALL WEATHER MORTGAGE –Some clients who are more suited to risk will prefer a variable rate. Many of the tracker products available are over 2% above bank baserate which could prove expensive if rates rise again. Afew lenders allow customers to take advantage of their trackers whilerates are low but permit them to fix at any point without incurring anyearly repayment charge if they decide that rates are on the increase.
- HEDGE YOUR BETS! – With some lenders you can mix and match your product and only pay one product fee. If you are unsure then why not split your deal between a fixed rate and a tracker?
7. LONGTERM BUDGETING – As the economy recovers, the need for long termbudgeting becomes paramount. Taxes are likely to rise and this couldaffect disposable income. Fixing at a low rate now means that you canbudget for the future.
It is important to consider the above. If you would like to discuss further please contact Jason Legg.
Written by Jason Legg