Brokers argue increases in standard variable rates could stimulate the remortgage market as borrowers look to fix their deal ahead of an inevitable rise in Bank of England base rates.
Since October 2012, average two-year fixed rate mortgages have fallen from 3.47 per cent to 1.88 per cent as at October 2014, while SVRs have increase 21 basis points from 4.32 per cent to 4.53 per cent during the same period.
Earlier this month, experts slammed lenders for “cashing in” on borrowers during a time when the Bank’s base rate has remained at a historic low of 0.5 per cent.
On the flip side, brokers say rising SVRs could bring an end to the remortgage slump that has seen volumes decline in recent months.
Council of Mortgage Lenders data published last week showed the number of remortgages fell 11 per cent year-on-year in October, from 26,600 in 2013 to 23,900 this year. In value terms, remortgage loans fell 5 per cent from £4.1bn to £3.9bn in the same period.
Perception Finance managing director David Sheppard says: “Although it is a concern that SVRs are starting to creep up even before we see any base rate increase, it may actually encourage those borrowers to go over their financial situations.
“We’ve heard so much talk about base rate increases on the horizon, then later we hear that being pushed back. In fairness, since Mark Carney gave us his so-called forward guidance, I don’t think anyone knows when the rate will go up. What we do know is that remortgages are falling and I think this trend in SVRs could potentially be a very good thing for the industry in terms of getting things moving.”
Neil Soundy Financial Services managing director Neil Soundy agrees.
He says: “Rising SVRs could push borrowers to look at their circumstances.
“This has got to force clients’ hands. When you secure a low fixed-rate, it’s akin to getting a pay increase, With SVRs rising, the subsequent pay cut – which is effectively what it is when you move onto the higher rate – is getting larger. Borrowers absolutely should be looking at fixing their mortgages now and if anything I think this trend will push them to doing that.”
A Mortgage Advice Bureau report in September revealed 4.8 million “silent prisoners” are stuck on their current deal due to negative equity or a lack of incentive to move.
Your Mortgage Decisions director Dominik Lipnicki says the increase in average SVRs gives borrowers an extra incentive to review the terms of their current deal.
“The fact of the matter is that rates are as low as I can remember them being and evidently the jump from headline rates to SVRs is growing,” he says. “That has to push people into doing the sensible thing.”