SVR mortgage holders will suffer when interest rates rise

| June 22, 2011 | 0 Comments

Consumer group Which? has warned homeowners with SVR mortgages that they will be financially squeezed once interest rates are lifted.

A Standard Variable Rate (SVR) is a mortgage in which the rate of interest is varied from time to time by the lender but it is usually set at about 2% above the Bank of England’s interest rate.

Consequently, according to economic conditions (such as interest changes), the monthly amount can go up or down.

Those with this type of mortgage have benefited from historically low interest rates and over 40% of mortgage borrowers are now on standard variable rates – which kick in after introductory mortgage deals expire.

However, research by Which? has established that 95% of lenders failed to pass on the cuts in the base rate.

The average SVR is currently 3.48% above the base rate compared with 1.95% in September 2008.

The Bank of England base rate has been set at 0.5% since March 2009 and, according to Which?, 20% of lenders have increased their SVR since that time.

As a result, Which? is concerned for households with these types of mortgages when interest rates are eventually lifted from this historic low.

Which? chief executive Peter Vicary-Smith comments: “Millions of people are on variable rate mortgage deals and for many a rate hike could mean they’re facing real financial difficulties.

“Banks have enjoyed increased margins on mortgages for the last few years and when the base rate rises again, few lenders will be able to justify passing the full amount onto their SVR customers,” he concludes.

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