One in four homeowners over 50 are paying much more than they need to by sticking on their lender’s standard variable rate and could see their mortgage payments jump higher if they don’t act now.
The standard variable rate (SVR) is the mortgage rate you automatically roll onto when your mortgage deal ends, unless you remortgage to another deal. SVRs are usually much higher than other mortgage rates, so if you’re currently on yours, you could be forking out hundreds, if not thousands, of pounds more than you need to every year.
At a time when living costs are rising, it’s more important than ever for all of us to make savings wherever we can, so if you’re on an SVR, or your current mortgage deal is about to end, now’s the time to take action.
Here, we explain why staying on your lender’s SVR is such a costly mistake, and why if you’re planning on remortgaging, you need to get everything you’ll need ready, or risk missing out on the deal you want.
Standard variable rates at highest level since 2009
Mortgage rates have jumped in recent months, following multiple consecutive increases in the Bank of England base rate since December 2021.
According to financial website Moneyfacts.co.uk, the average (SVR) is currently 6.40%, considerably higher than the pre-pandemic rate of 4.90% in March 2020. Rates are expected to rise further in coming months in a bid to tackle soaring inflation, so if you want to protect yourself from even steeper mortgage payments, now could be the time to act.
Unfortunately the over-50s tend to be worse than other age groups at making sure they’re on the best possible mortgage deal.
Our research found that 26% of over 50s said their mortgage deal had expired and they were on their lender’s SVR, compared to 18% of those aged under 50. Of the over 50s who have remortgaged, nearly one in 10 (9%) said they didn’t remortgage after coming to the end of their mortgage deal, compared with 3% of under 50s. More than one in four over 50s said they didn’t know or didn’t recall what they did when it came to their last remortgage, compared to just 17% of homeowners aged under 50.
Many people over 50 are put off remortgaging because they don’t think they’ll be eligible for a new deal due to their age. However, there is a growing range of options available to homeowners in this age bracket, which you can read more about in our articles Mortgages for over 50s: What you need to know and Mortgages for over 60s: what you need to know.
How much can I save by switching away from the SVR?
The amount you’ll be able to save by remortgaging away from your lender’s SVR will depend on the size of your mortgage, and on the rate of your new mortgage deal.
For example, someone with a £100,000 repayment mortgage with 10 years left to run who is on the average SVR of 6.40% would currently be paying £1,153 a month. However, if they switched to a two year fixed rate deal at 4.99%, their monthly repayments would fall to £1,078, a saving of £75 a month or £900 over a year. This example does not factor in any arrangement fees.
The bigger your mortgage, the more you’ll be able to save by remortgaging away from your lender’s SVR. If, for example, you have a £175,000 repayment mortgage, again with 10 years left to run, your mortgage payments would cost £2,019 on an SVR of 6.40%. If you remortgaged to the same 4.99% two year fixed rate, your payments would fall to £1,887 a month, a saving of £124 a month, or £1,488 a year.
Remember, however, that there may be costs involved in remortgaging which might affect the amount you can save, such as valuation and legal fees. Find out more about these in our guide How much does it cost to remortgage?
Where can I find a good mortgage deal?
If you’re remortgaging, talking to your current lender can be a good place to start. They will be able to let you know how much you can save by switching to a new deal, and may offer preferable rates to existing customers. Knowing what they can offer you gives you a good basis for comparison when you start shopping around elsewhere.
If you do decide to stick with your current lender, this may make the remortgaging process more straightforward as you’re unlikely to have to go through all the same identity and other checks that you’d need to go through if you went to a new lender.
Whilst it may be the most straightforward route, it is important to remember that it’s unlikely (although not impossible) that your existing lender will happen to offer you the cheapest deal available on the market. You can see how their deals stack up against the competition by comparing mortgage rates from the whole of the market with this mortgage comparison tool.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
What if my current mortgage deal hasn’t finished yet?
You’ll need to do your sums carefully if you are still tied into a mortgage deal, as there’s a chance any early repayment penalties you might have to pay might wipe out any savings you make from remortgaging.
As a general rule, the longer your mortgage deal has left to run, the higher any early repayment charges are likely to be. That’s because these charges are often a percentage of your mortgage balance, with this percentage reducing over time. Check with your lender to see how much you’ll have to pay to move, or if in doubt seek advice from a mortgage broker who will be able to advise whether it’s worth remortgaging now, or waiting until your current deal ends.
It’s also worth noting that you can usually lock into your next mortgage deal up to six months before your current mortgage deal finishes, so if you’ve only got a few months left it’s well worth starting your mortgage search now. Learn more in our guide When is the best time to remortgage?
Get your documents ready
Mortgage rates are changing really fast at the moment, so you’ll need to have all the paperwork your lender is likely to need ready to go. If you don’t, then there’s a chance the deal you want will have disappeared by the time you get it together.
The average shelf-life of mortgage products has fallen to a matter of weeks, with the uncertain economic landscape prompting many providers to change their offerings quickly. Some deals have only lasted for a few days before being changed or withdrawn altogether.
Teddy Cenaj, mortgages expert at Rest Less, said: “I would advise anyone to get their documents together quickly: three months of payslips, three months of bank statements, proof of ID and address at the very least, so when they find a deal they are happy with they can get it secured as soon as possible. In the current market, rates are being withdrawn with little to no notice, so unless we act fast, we could lose the deal and end up having to go for a more expensive one.”
The exact documents that lenders require for your mortgage application process may vary depending on your individual circumstances, for example, whether you are employed or self-employed. If you are self-employed, you will usually need to have at least two or three years worth of accounts available to show lenders. You can find out more about the sort of information you’ll need to provide to support your mortgage application in our guide How to apply for a mortgage – everything you need to know.
Many lenders offer free legal work if you’re remortgaging to them, but if you choose a deal that doesn’t make sure you have a solicitor lined up to carry this out for you. If you don’t already have a conveyancer or solicitor, read our article How to find a good conveyancer or solicitor.