Independent Financial Advisors for IT Contractors
Published on 8th January 2008
With homeowners eagerly anticipating a reduction in Bank of England base rates in the coming months, it was disturbing to see Standard Life Bank announce an increase in its variable mortgage interest rate.
Standard Lifes Freestyle range of mortgages has been popular with contractors but the cost of borrowing from this niche lender look set to be on the increase.
Tony Harris from specialist mortgage advisers ContractorMoney explains 'unlike mortgages that track the Bank of Englands base rate, a mortgage that is priced at or discounted to the lenders standard variable rate is open to the commercial requirements of the lender'.
If the base rate drops and you are on, say a discounted tracker mortgage, then the lender must pass on that saving to you but with discounted standard variable rate schemes you are reliant on the lender reducing their in-house cost of borrowing in line with the central bank.
Financial markets are still in a state of turmoil after 4 months of fallout following the credit crunch and it is likely that Standard Life are repricing their offering in comparison with the rest of the mortgage market in response to this.
Problems with so called 'sub-prime' lending in the US has led to a tightening of the debt markets which has, in turn, made life difficult for many mortgage lenders.
Initially it was only those borrowers who had had problems with credit or wanted non conforming mortgage schemes, now it seems that the main stream mortgage market is feeling the pinch.
The well known lender Standard Life has raised its standard variable rate (SVR) by 0.15% to between 7.46% and 7.66% depending on the scheme. This is inline with the market average, most are actually higher. It must be said that Standard Life have done a great job keeping it low for so long bucking the trend. However other lenders may follow suit.
The SVR is a rate of interest which the lender controls and sets, it moves up and down usually in line with a Bank of England base rate increase or decrease.
It is very rare for a mortgage lender to increase their SVR without first seeing a Bank of England base rise, the last rise was in July this year. The increase last week has led to the speculation that Standard Life is feeling the effects of the credit crunch.
Thankfully Standard Life dont have any schemes which are directly linked to the SVR in the form of discounted rates but it will effect those borrowers whose deal has come to an end and they are now on the SVR. Many will not have remortgaged because the SVR was relatively low and gave some flexibility by not having a tie in period.
Now the majority of their rates and infact most lenders rates instead 'track' the Bank of England base rate at a certain percentage above or below 5.75%. This adds more security because any increase or decrease is decided by the regulators of the industry and also the government, rather than the lender who is effectively a business.
Now is the time to look at your current deal, over 50% of all borrowers are on the SVR and paying over the odds for their mortgage. There are some great deals still available, with competitive rates starting at around 5.5%. We try to use lenders who will pay for the any legal work and the valuation of the property keeping the costs down for you.
If you tie-in period is coming to an end look to remortgage on to one of these rates 6-8 weeks beforehand to prevent you having to go on the SVR. Now is the time to be pro active and in the process you can save money.
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