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Advice is back in fashion

The whys and wherefores regarding Skipton Building Society’s decision to raise its standard variable rate by 1.45 per cent to 4.95 per cent at the beginning of March have been well documented. Market conditions are tough and Skipton is not the only lender struggling to make cheap rates pay. But it is tough on borrowers, particularly in this case when they thought they had a cast-iron guarantee that the SVR would be no more than 3 per cent above base rate and are likely to have budgeted accordingly.

Skipton is not alone several building societies have raised their SVRs in the past few months, even though interest rates have been held at a historic low of 0.5 per cent. It is unlikely to be the last, with other lenders unable to continue to offer such cheap rates.

Borrowers have no need to panic but they must remain vigilant. Some commentators advised borrowers to switch to a fixed rate immediately but while a fix may be the right option for some, it will not be for all. Advice is vital and where better to go for it than an independent broker who can assess the situation from that particular client’s point of view?

The remortgaging market has all but disappeared in the past couple of years as borrowers consider SVRs to be the best place for their mortgage when they come to the end of a fixed or discounted rate. Remortgaging is now seen as being expensive because there might be a big arrangement fee to pay and unnecessary when variable rates are so cheap.

But are they really? With cheap SVRs under threat, a huge potential remortgage opportunity is starting to emerge. But to be fair, it has been there a while only many consumers have not realised it.

More than a quarter of SVRs are 5 per cent or higher not that great a deal when you consider some fixed-rate and tracker pricing at the moment, particularly for those with chunky amounts of equity in their homes.

According to Moneyfacts, there is such a wide variation in SVR among lenders that it equates to nearly £5,700 a year on a £150,000 homeloan and many homeowners have far bigger mortgages than that. While Lloyds, C&G and Nationwide may be charging 2.5 per cent, Chesham is charging 6.45 per cent and a number of the smaller societies also have fairly high rates just under 6 per cent.

The big problem is those homeowners who are forced to be on a high SVR because they do not have enough equity in their home to enable them to remortgage. Again, this is where advice is crucial, looking at ways to improve their equity stake to enable them to switch to another deal once they are in a position to do so.

Although we would argue that it never went out of fashion, advice is moving back into vogue. Brokers must ensure they are well placed to provide it.

Mark Harris is managing director of Savills Private Finance

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