As contractor accountants, we’ve noticed that one of the most worrying trends in the mortgage world post-pandemic is the number of people letting their mortgage lapse on to the lenders Standard Variable Rate (SVR).
Almost 25% of all homeowners (possibly up to 50%) have, at some point, drifted onto an SVR due to either not realising their current deal was about to or had expired, and not realising that there was a raft of alternatives available to them. Take a look at why you should stay clear of SVRs.
What is an SVR?
Every mortgage is time-bound – this means it will expire at some point and the current terms, including the interest rate being charged, are no longer valid. Some people think that if their mortgage deal expires and they don’t have a new one in place, they will lose their home, which, of course, isn’t the case.
However, they migrate to the lenders SVR without even having to do anything, which, for some, can be a big relief. But moving onto an SVR will almost always mean paying more, seeing as the interest rate will be a couple of percentages higher than any other rate the lender offers. This is why we don’t recommend this option.
What is the Likely Financial Impact of Moving Onto an SVR Mortgage?
In essence, quite a large hit. In fact, estimates put the cost for many at just over £4,000 of additional interest costs per year, a staggering additional amount to pay when you think about it (the equivalent to around £340 a month).
This is money you could be spending on the things you enjoy, instead of having to pay that much interest.
What’s more, some people think that, as the monthly cost of an SVR is higher, that they are paying their mortgage off more quickly, when in fact they are simply paying more interest.
What Can You Do if You’re On an SVR or Your Deal is Close to Expiring?
This is the easy part – remortgage. Remortgaging doesn’t mean taking on more debt, or an additional mortgage, it just means moving to a new deal. It’s the same as swapping to a different gas and/or electricity supplier, and it can often mean staying with the same provider but on another of their mortgage products.
Hardship, Covid & Furlough: Financial Changes?
As a self-employed individual, don’t be scared to speak to someone if your financial situation has changed even slightly. Many people hit by Covid or other situations that affect their finances don’t want to speak about their mortgage for fear of the lender finding something out that negatively impacts them.
But you’ve nothing to fear or lose as the very worst-case scenario is not being able to get a new mortgage deal and therefore having to move onto an SVR.
Next Steps?
Looking for contractor mortgages or want to have your current deal reviewed? Speak to us no matter when your deal expires, be it in 12 months or in a month, and we can help you to save money by helping you avoid SVRs – and by ensuring you get a better deal once your current contract ends.
We’ve partnered with Roots Mortgages to supply you with specialist mortgages for contractors, freelancers and SME owners, so you have access to over 12,000 mortgages from more than 90 lenders. We’re confident you’ll find the right product for your situation (and preference)!
