Variable rate mortgages skimp on base rate savings says Which?

Wednesday, 22 June 2011 11:03

Standard variable rate mortgages are the 'default' format for the lending to take, once any introductory fixed-rate offers are over.

However, they are not to be confused with tracker mortgages, which formalise the link between the interest charged and the Bank of England's base rate.

According to Which?, many lenders have not lowered their SVR by as much as the base rate in the years since the credit crunch.

In September 2008, the average SVR was 1.95 percentage points higher than the base rate, which at the time was a flat five per cent.

Now the base rate is just 0.5 per cent and the typical SVR is 3.48 per cent higher.

Peter Vicary-Smith, chief executive of Which?, warns that the margins banks have enjoyed on their lending in the past few years could convert into affordability issues for many households if the base rate begins to rise.

However, the Council of Mortgage Lenders has responded by claiming that the base rate alone does not tell the full story.

Rather, lenders face their own costs when trying to raise the required funding to be able to issue new mortgages to applicants.

Citing fundamental change in the mortgage markets during the economic turbulence, CML director general Michael Coogan argues that there is no longer so close a similarity between the base rate and the true cost of raising the funds.

Use the Myfinances.co.uk comparison tables to find the best deal on a mortgage

• Tags:
• base rate
,
• interest rates
,
• news
,
• svr