Money Matters: Craig Poulter on standard variable rate: the lender’s licence to print money

It is estimated that in the UK 3 million mortgages are on a lender’s standard variable rate: I hope you’re not one of them?

In a few, limited circumstances, being on a lender’s standard variable rate makes sense, for example if you are looking to move in the immediate future or planned to pay off your mortgage. For the majority it is essential whenever your initial benefit period (i.e. 2 year fixed rate) ends you have a new mortgage lined up to take its place. The majority of high street lenders have a standard variable rate in the region of 4%, which 5 years ago wouldn’t have been terrible. However, in a market where lenders are now fighting for your business rates can be found at circa 1% for a 2 year fixed rate, paying in the region of 4% is going to add a sickening amount of interest to your monthly payment.

Paying in the region of 4% is going to add a sickening amount of interest

If you find that your circumstances have changed significantly since you first applied for your current mortgage, resulting in lower income, finding a new lender could be particularly difficult. In recent years lenders have been far more accommodating with “product transfers”, this is where they offer you a new rate (usually quite competitive) without the need for seeing new payslips, bank statements, credit score. As long as you have kept up to date with payments most people qualify for a product transfer. The Financial Conduct Authority are due credit for this shift in attitude, but target mortgage lenders on retaining their customers rather than letting them leave without the offer of a new deal.

I would recommend reviewing your mortgage 4 to 5 months before the rate is due to finish, this allows plenty of time to resolve any potential hiccups and gives the solicitor more than enough time to get the transaction completed if a switch to a new lender is best suited. Remember, always speak to a reputable broker rather than trying to do it alone, make the most of their expertise and trust them to tailor the mortgage to your circumstance.

Craig Poulter Certs CII (MP &ER)
www.venturemm.co.uk
01323 894532