Mortgages Section

Mortgages - The Sneaky Standard Variable Rate (SVR) Trick - Many Borrowers Are Overpaying

January 2005

It is estimated that the banks and building societies are raking in an extra £1billion in profits a year due to sneakily pushing up the interest rate charged to clients whose mortgage payments are priced via the Standard Variable Rate (SVR). The trick has been to ever so gently increase the interest rate charged hoping that most clients won't notice.

A little history -

• Base rates are now 4.5% which is exactly the same as they were in September 2001
• Back in 2001 the average SVR charged by the biggest banks was 6.11%
• Now the average SVR is 6.36% or 0.25% higher for no apparent reason apart from to increase profits at the expense of their clients

They Tend To Treat New Clients Better Than Old

It's a paradox in the banking and finance world that new clients are normally treated far better than old established ones. Text book business studies suggest it should be the other way around. But if that's the way banks prefer to do their business then we must play the game by their rules and become new clients of other banks/building societies. This will help us reduce our monthly outgoings for all sorts of financial products such as mortgages and credit card payments (via 0% balance transfer or reduced interest rates).

This is therefore one of the reasons why SVRs have been edged higher and higher, part of the extra profits are being used to market and offer discounts to new clients.

Remortgage Is The Way To Go

• If you're paying a high interest rate via an SVR mortgage then a good plan is to start thinking about remortgaging
• This will enable you to reduce your interest rate and hence the monthly payments
• It's best to employ a broker (or at least initially talk to one or two) so as to get access to deals and advice
• Keep a close eye on ALL costs, including exit fees from your present mortgage and fees payable to advisors, don't just go after the cheapest mortgage because extra fees might make it more expensive
• Read the LearnMoney.co.uk article - Why You Should Consider Using a Mortgage Broker
• Also, read this InvestorProfit article which gives reasons why you shouldn't employ a mortgage advisor! Which! Says Watch Those Mortgage Advisors

Summary

When it comes to banks and building societies always be on the lookout for their skims and (legal) scams because they're masters of the art. And don't forget if you want the best deal it's often best to say goodbye to an old relationship and become a new client. The scandal of pushing up the SVR when interest rates don't move higher proves this point.

Good luck in getting a cheaper mortgage deal!

See Also

• More On Those Nasty Mortgage Fees
• 50% Of Mortgages Holders Are Paying Far Too Much
• Find's Mortgage Lender links