Are you a lucky SVR winner? Why the end of fixed-rate mortgage deals can mean big savings

By JEFF PRESTRIDGE, MONEY EDITOR AT LARGE
Updated: 14:52 EST, 10 January 2010

The Young family will save £265 a month when they come off their two-year fixed rate deal

The New Year could hardly be starting better for the Young family. From the end of the month, their mortgage payments will tumble by nearly 30 per cent - without them having to do a thing. Gary and Paula Young, who have two children, Eleanor, 4, and 12-month-old Kate, are among the lucky ones.

The couple, from Fradley, Staffordshire, are coming off a two-year fixed-rate mortgage with Lloyds Banking Group's Intelligent Finance offshoot, which now looks expensive at 6.09 per cent, and going immediately on to its competitively priced standard variable rate (SVR) of 2.5 per cent. From February, their monthly premium will fall from £904 to £639.

Competitive 'revert to' SVRs such as these are increasingly becoming a rarity as lenders, especially small building societies, seek to rebuild their profits after the credit crunch storm. But mortgage experts believe that borrowers coming off discounted or fixed-rate loan deals, such as the Youngs, should seize them if they are still available.

Davvid Hollingworth, mortgage expert at broker London & Country in Bath, Somerset, says: 'If you're being offered a "revert to" mortgage rate of less than four per cent, it's worth considering, but any rate above that should act as a trigger to shop around.'

These compare with SVRs of more than 5.5 per cent charged by a number of building societies (see table). In recent weeks, several lenders such as Marsden and most recently Mansfield have raised SVRs and others are likely to follow.

'It was a no-brainer to go on to the "revert to" pay rate with IF,' says Paula, 37, who is a Press officer for Cancer Research UK. Gary, 40, is a journalist with a local newspaper.

'When we fixed two years ago I was on maternity leave and we wanted certainty on how much our mortgage would cost.

This time round we could have fixed again for financial peace of mind, but not at a rate anywhere near IF's ''revert to'' rate of 2.5 per cent.

'Although our new mortgage rate is variable and could go up if the base rate rises, it will need to move up substantially before we come anywhere near matching the payments we've been making for the past two years.'

Hollingworth says borrowers who are with lenders that have less generous 'revert to' SVRs should shop around before agreeing to go on the society's variable rate.

'Provided you've got a decent amount of equity in your home - at least 20 per cent - you should be able to secure a better rate than the SVR - a fix or one that tracks the base rate,' he says.

For borrowers with at least 40 per cent equity, Cumberland Building Society, for example, is offering a two-year fix at 3.49 per cent with a £995 fee.

HSBC is also offering a lifetime tracker that promises to charge a rate 2.09 percentage points above the base rate. There is a £999 fee.

Newcastle Building Society is offering anyone with 20 per cent equity a two-year fix at 3.65 per cent (£994 fee). First Direct's lifetime tracker is 2.99 points above the base rate and has a £999 fee.

A huge help with the budget

One of the best SVR deals at present is from Nationwide. Until last year, anyone taking out a discounted or fixed-rate loan was guaranteed a 'revert to' SVR, which the society calls its BMR (base mortgage rate), at the end of the special deal that would be no more than two percentage points above the base rate.

It means thousands of Nationwide's 1.1 million borrowers are now enjoying a BMR of 2.5 per cent. No other lender other than Lloyds has such a consumerfriendly 'revert to' rate. 

One happy Nationwide couple are Paul and Deborah Stanley from Ashford, Kent.

This time last year, Paul, a 34-year-old accountant with a Swiss bank in the City, and Deborah, 33, an accounts payable supervisor for a Japanese bank also in the City, had just come off a five-year fixed-rate loan with the mutual at 4.99 per cent. After shopping around, they stayed with Nationwide and went on to its BMR.

As a result, the rate on their £160,000 repayment mortgage has dropped to 2.5 per cent. 'We'll stick with Nationwide as long as the mortgage rate remains so competitive,' says Deborah.

'A year ago, our monthly payments were just over £1,130, but since going on to the BMR, they have dropped to just under £909. What with the arrival of our son Andrew 15 months ago, it has helped with the household budget.'

New borrowers cannot go on to Nationwide's BMR, but are put on to a 'revert to' rate, currently 3.99 per cent.

Nationwide says more borrowers are going on to its BMR, but will not divulge numbers.