|
Mortgage market: base rate cut leaves SVRs harder to obtain
Nov 21, 2008 (Datamonitor via COMTEX) --
Standard variable rate mortgages have recently become some of the most competitive on the market, largely due to the recent 1.5% slash in the base rate of interest by the Bank of England. However, with some SVR rates now as low as 5%, it is of no surprise that many banks have stopped offering this product.
Following the 1.5% cut in the base rate by the Bank of England (BoE), standard variable rates (SVRs) have become far more competitive than other mortgage products, and have consequently attracted a large demand. Prior to the credit crunch, they were often less desirable because of being more expensive and unpredictable than fixed rate mortgages. As a response, many major lenders are now no longer offering SVRs to new customers.
An SVR is the default variable rate lenders offer to mortgage borrowers, and is usually set in line with the BoE base rate. Datamonitor estimates that the differential between the base rate and the SVR set by lenders is on average 2%, however the gap between the base rate and the SVR has been widening over the past couple of years, indicative of lenders re-assessing risk and trying to recoup additional margins. The differential has increased from an average of 1.7% in August 2006 to 2.4% in October 2008, although there are still some lenders offering SVRs at less competitive rates. For example, Chelsea Building Society currently offers its SVR at 7.24%, 4.24% above the base rate.
As a mortgage represents a single lifetime investment for many borrowers, it has historically been a very price responsive product. And with increasingly savvy and price conscientious customers entering the market, the industry has become far more price sensitive. This has been aided by the greater availability of online information, as seen by the popularity of price comparison sites such as comparethemarket.com.
SVRs are now becoming more of a viable option for borrowers, as short term mortgages remain more expensive and less readily obtainable. However, many lenders charge exit and application fees for individuals wishing to take out an SVR. Secondary research reveals that approximately 40% of lenders charge an arrangement fee at an average of GBP213.80. Redemption fees are far more widespread, with 88% of banks charging an average of GBP155.
With base rates expected to fall, Datamonitor anticipates that lenders will further raise the rate of interest charged on SVR products in order to maintain healthy margins. The remainder of lenders will simply stop offering SVRs to borrowers due to their increasing competitiveness.
http://www.datamonitor.com
Republication or redistribution, including by framing or similar means,
is expressly prohibited without prior written consent. Datamonitor shall
not be liable for errors or delays in the content, or for any actions
taken in reliance thereon
[ Back To TMCnet.com's Homepage ]
|
INDUSTRIES
Activate Email 
Find Solutions for Enterprises, SMBs & Service Providers at the INTERNET TELEPHONY Conference and EXPO East, January 20-22, 2010. Miami, FL.
