Mortgage rates lowest in a year

With mortgage rates now at the lowest level for a year, if you're coming to the end of your mortgage deal you face a big choice

Before the financial crisis hit, your lender’s standard variable rate (SVR) mortgage was always one to avoid like the plague. If you didn’t remortgage once your special rate deal came to an end, you were automatically moved onto the SVR, which was normally the lender’s most expensive mortgage.

But all that has changed. Lenders usually adjust the SVR whenever there’s a change in the base rate. So it follows that now the base rate is at its all-time low of 0.5%, SVRs have become cheaper than ever before.

Existing Borrower’s Rate

That said, it won’t surprise you to hear many lenders were quick to cotton on to the fact that borrowers would start to enjoy super low SVRs once their current mortgage deals had finished.

These days, you’ll see some lenders have moved away from the traditional SVR mortgage, and replaced it with an existing borrower rate which borrowers will default to if they don’t take out a new deal.

The existing borrower rate might not be quite as competitive as the SVR would have been, but that doesn’t mean they don’t offer borrowers a decent choice. The table below shows the current SVRs or existing borrower rates for some of UK’s largest mortgage lenders:

SVRs from some of the largest lenders

Source: eMoneyfacts.

As you can see, some of the rates are extremely competitive with Woolwich, for example, charging an existing borrowers rate of just 2.49%. But not all rates are this attractive. The rate at Alliance & Leicester currently stands much higher at 4.99%, while the SVRs at some other lenders (not shown in this table) are even more expensive.

• Join our Cut your mortgage costs and pay off your mortgage early goal.

Related goal

Cut your mortgage costs and pay off your mortgage early

Find out how to cut the cost of your mortgage by hundreds of pounds a month and become mortgage-free years earlier.

Do this goal

Should you choose the SVR?

This depends on several factors, not least whether moving onto the SVR or existing borrower rate would involve an increase or decrease in your repayments. Of course, if your lender’s SVR still means a significant hike in your monthly outlay, remortgaging to a cheaper rate is a no brainer.

Having said that, if the SVR offers a competitive rate, it really is a no hassle option because you’ll move to it automatically, and avoid paying product fees which are often payable when you remortgage to a new deal.

On top of all that, the SVR gives also gives you flexibility. If the rate you’re paying becomes uncompetitive, you have every right to remortgage to a better deal at any point in the future without early repayment charges even coming into play.

The SVR versus special rate deals

The SVR is no longer the ogre of the mortgage world, but at the same time rates for fixed deals have also improved. In fact, lovemoney.com partner Moneyfacts, has recently reported mortgage rates are at the lowest level in a year. So it’s certainly worth pitting your lender’s SVR against other deals before making your choice.

The average two-year fixed rate deal is currently just 4.63% which beats some SVRs. But remember it isn’t just about the rates. Fixes give you the security of a guaranteed rate for a set period which you won’t get with the SVR.

Plus with the base rate poised to climb, variable rate mortgages, such as SVRs, can only get more expensive as times goes on. To find out more about prospects for interest rates take a look at Get ready for base rate rises.

So, with fixed rates falling, it may be time to reconsider your options if you’ve been sitting on your lender’s SVR for a while. The table below shows the lowest rate two and five-year fixes for borrowers with various levels of equity in their homes:

Lowest fixed rate deals

Source: Moneyfacts. Loans with extended early repayment charges have been excluded. Mortgages with high product fees have been excluded.

If you have around 20% to 30% equity in your home and you want a shorter term fix, you’ll be able to better some lenders’ SVRs, and have the peace of mind that comes with a fixed rate deal.

Recent question on this topic

• slinky asks:

  I am on an svr of 4.99% and want an offset deal, I think......

  • 
    welshlady answered "Hi Slinky Depends on your circumstances, by offsetting instead of paying off a lump sum on your..."
  • Read more answers

But the choice is less clear cut for borrowers who want to fix their rate over the longer term. There’s a significant margin between two and five-year deals which means the longer term option could be markedly more costly than your SVR. Again, it’ll be a case of balancing your need for security with a fixed rate against lower initial repayments on the SVR which should ultimately sway your decision.

But for some borrowers sticking with the SVR is definitely the right choice for now. After all, the cheapest five-year fix at 90% loan to value (that is, for borrowers with 10% equity) charges a whopping 6.99% which is far more expensive than the vast majority of SVRs.

It’s clear your decision will entirely depend on your own circumstances as a borrower. If you need help deciding which way to turn, speak to a broker at the lovemoney.com mortgage service.

More: Want a mortgage? You’ll have to pass an exam | Get ready for base rate rises

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 4045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term will revert to the lender's standard variable rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.