Mortgage advisors are urging mortgage holders to ‘shop around’ and consider all remortgage options, as some lenders raise their mortgage interest rates to account for a possible Bank of England rates increase later this year.
Some lenders are already making upwards revisions to their standard variable rate (SVR), which is the interest rate customers move to by default, if they do not switch to a different mortgage deal at the end of their initial tie-in period.
Shopping around with mortgage advice from an independent financial advisor can result in a mortgage or remortgage deal that, on average, will cut nearly £1,000 a year off mortgage repayments*. At Principle First we have recently located mortgage deals with rates less than 2% for our customers.
Some lenders are reported to be basing their affordability calculations on a possible SVR much higher than the current average of 4.75%.
One lender making upward revisions to its SVR now, to factor in a possible rise in the Bank of England base rate, is the Yorkshire Building Society.
The Yorkshire Building Society said that its policy on affordability for the customer takes into account his ability to meet “both initial and future mortgage repayments”, which has been seen as an acknowledgement that mortgage repayments may rise considerably in the near future.
For first time buyer mortgages, these are increasingly restricted to the amount of a couple’s joint annual salary, where previously, lenders would have offered a multiple of this figure.
The Council of Mortgage Lenders confirmed that, while lenders assess affordability in different ways, “some are taking the view that it is prudent and sensible to assess how affordability would be affected by a change of circumstances.”
During 2009, banks were criticised for taking advantage of the historically low base rate of 0.5% with massive profit margins from SVRs of 4-5%, while, on the other side, offering savers average interest rates of just 0.58%.
*Source: Association of Mortgage Intermediaries (AMI)
