Standard Variable Rate No Longer Available For New Loans
It was only just over twelve months ago when if a borrower’s mortgage or home owner loan reached the end of the initial deal and reverted to the lenders standard variable rate (SVR), then they would be shopping around for a new deal and it wouldn’t take them long to find a new lender who was prepared to offer them a cheaper loan than their existing one.
The lenders standard variable rate was reserved for those individuals who were unable to get a better deal from an alternative lender, or the default option for someone applying for a new secured loan, who could not qualify for a better cheap loan deal.
How things change in the space of a year. Since the Bank of England reduced the base rate of interest over the last couple of months and the vast majority of banks and building societies have been forced by the Government to reduce their SVR’s accordingly, these have now become some of the most competitive deals on the market.
For existing borrowers, whose initial secured loan deal has now ended and the product has reverted to the SVR, there is little point looking around for a new deal, as their existing loan is likely to be cheaper than any remortgage product available elsewhere on the market, often with interest rates in the region of as low as 5 per cent.
However, for many people who are looking for a new home owner loan, these SVR products are no longer available, as a large number of lenders have made this rate unavailable for new loans, or are simply not advertising the product.
For those lenders who are still offering the SVR to new borrowers, in many cases they are charging large arrangement fees and also high redemption penalties, which increases the overall cost of the loan and cancels out the benefit if obtaining a cheaper interest rate. Approximately 40 per cent of lenders now charge an arrangement fee on their SVR home owner loans and 88 per cent charge redemption penalties.
