Mortgage BTL

Many, many borrowers are continuing to benefit from low standard variable rates. With rates expected to continue to stay low, what risks lay ahead for existing and new borrowers choosing to stay put? Standard Variable Rates vs Tracker Rates

Standard Variable Rates vs Tracker Rates

Existing Borrowers:

With standard variable rates at an all-time low, the appeal to switch to a new deal has never been so dire. If you are an existing borrower you will be enjoying the current low monthly payments on your mortgage. It's best to check with one of our advisers but most likely you will be better off staying put to continue to benefit from lower monthly payments. New lender arrangement fees / booking fees will most likely be the reason to hold off.

Make sure if you are staying put that you proceed with caution, learn from the lessons experienced towards the end of 2008 when the base rate kept on falling; lenders hesitated to reduce their variable rates. ('Lenders fail to reduce standard variable rates' press reports from The Times and The Guardian). The concerns going forward will be the lenders increasing their variable rates, even if the base rate is to remain steady. Remember, the banks are not obliged to follow The Bank of England base rate with their own standard variable rates. They can move their standard variable rates up and down any time they see fit.

Our advice: Keep your eyes and ears glued to the news and reports. Unfortunately this is what you are going to have to do if you want to continue to benefit from current low rates and be ready to move to a better deal in time. Your looking out for one bank announcing they will be increasing their standard variable rate. At this point speak to our advisers straight away.

New Borrowers:

There are an increasing number of deals available on lender standard variable rates that are becoming more attractive to those buying a new property. It is easy to see why with lenders offering a very low entry, some with little or no set up fees, but again buyers should proceed with caution. Given the choice, our advisers would be choosing tracker options all day long.

If you are choosing to go onto a variable rate mortgage you are choosing to leave the decision on any future rises in the hands of the lender. With the Monetary Policy Committee (who meet up to decide on the Bank of England base rate) under more and more pressure to keep rates low, you are in safer hands choosing a base rate product instead of leaving it to the lender; who can decide at any point to make a bit more profit even if the base rates remain stable.

All Borrowers:

I should note that it would be highly frowned upon by the government should a lender decide to raise their variable rates in the current climate but it's not unfeasible and the government ultimately have no control. Borrowers need to understand that there is a distinction between tracker mortgages and standard variable rate mortgages. Tracker mortgages will follow any decision by the Monetary Policy Committee but standard variable rates will not always do the same. This could also mean that should the base rate rise, a lender may decide to keep their standard variable rate at the same level! Great positive media coverage for the lender, I wouldn't bank on it though.

The best way I can present the issue is this. Look at the difference between the lenders and what they choose their standard variable rates to be:

If you take a look above you will see the big difference in the lender standard variable rates, this table effectively shows at what level these lenders are comfortable lending. With such a wide fluctuation we can expect to see some adjustments over the coming 12 months. Rest assured we will be keeping a close eye on these figures and you will be kept updated.