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HOME IN ON FIXED RATES; Borrowers stuck on standard deals could be wasting cash; Quick-fix to lock in cash.

Byline: TRICIA PHILLIPS PERSONAL FINANCE EDITOR t.phillips@mirror.co.uk

MILLIONS of borrowers are shelling out way over the odds for their mortgages as they hang around on lenders' standard variable rates.

Around 4.4million people - 39% of the mortgage market - are languishing on an average SVR of 4.86%, yet 3.6 million could save thousands by remortgaging.

While the best mortgage rates are still only available to those with higher deposits of more than 25%, the good news is that those with at least a 15% deposit could now find a rate below 4%.

Some Nationwide Building Society, Lloyds TSB and Cheltenham & Gloucester customers are on the lowest SVRs at 2.5%, capped at 2% above the bank rate.

At the other end of the scale, though, Nottingham Building Society has borrowers on a whopping 6.14% SVR.

Research from HSBC shows a homeowner with a PS150,000 loan on an average SVR of 4.86% could save more than PS1,000 in interest over the first year by moving to its two-year discounted rate at 3.84%.

Collectively, if those who have a minimum of a 15% deposit on an average 4.86% SVR could find just 0.5% interest savings on their outstanding loans, they could make a combined annual saving of more than PS1billion in monthly repayments in the first 12 months alone.

Lenders' SVRs were usually a last resort - the default you go onto when you reach the end of a mortgage deal. But, with the current historically low base rate, some SVRs have been very attractive and savvy homeowners simply reverted to them to save on monthly repayments and avoid the hassle and hefty fees of remortgaging.

But the tough lending climate has also forced many other borrowers onto SVRs as they are worried they will be turned down if they apply for a new deal.

The problem is that lenders can hike up SVR rates at any time and on a whim. They are not tied in to the base rate, so borrowers can face hefty repayment increases with little warning.

This happened recently when Santander increased its SVR from 4.25% to 4.74% in October and hundreds of thousands of borrowers saw their monthly repayments shoot up - it added around PS500 extra to a PS150,000 loan.

It followed hot on the heels of other bigname banks, including Halifax, the Co-op/ Britannia and Clydesdale/Yorkshire Bank raising their rates, affecting more than a million borrowers.

Independent financial analyst Andrew Hagger says: "If you're sitting on your lender's SVR, you are at their mercy as there's always the risk that they may choose to hike the rate, even if the base rate remains static.

"Just because the base rate is unlikely to move in the next few months, it doesn't mean that your lender won't raise your SVR.

"With PPI refunds running into billions, lenders will be looking for ways to increase their income levels next year, so just as we saw hikes by some big names in 2012, I wouldn't rule out more of the same in the coming 12 months.

"With interest rates at all-time lows, it's a good time to consider fixing your rate to give yourself some peace of mind that one of your biggest monthly outgoings isn't going to increase and put extra pressure on your budget."

On a PS150,000 mortgage over 25 years, paying 4.86% would mean repayments of PS865 per month.

If you have a 25% deposit (equity) and switch to a three-year fixed interest mortgage with Yorkshire Building Society at 3.14%, with a PS495 fee, payments would drop to PS722 per month.

That's a saving of PS143 a month and a tidy PS4,653 over the three years - even after you've paid the PS495 fee.

A five-year deal from the Co-operative Bank, at 3.79% and no fee, for those with just 15% deposit, would cost PS775 per month, saving PS90 a month or an impressive PS5,400 over the term.

Ray Boulger, senior technical manager at independent mortgage adviser John Charcol, says: "The number of people who will find it worthwhile switching from their SVR has increased significantly over the last year, party because fixed rates have fallen sharply and partly because several lenders have increased their SVR by around 0.5%.

"Most people will need at least 15% equity to make remortgaging worthwhile," he added.

"The basics are, the higher your SVR and the more equity you have, the greater the benefits. People on the cheaper rates with Nationwide, Lloyds TSB and Cheltenham & Gloucester will prefer to stay put, but most SVRs are between just under 4% and just over 6%.

"For those on the highest SVRs, say over 5%, remortgaging may be worthwhile even with only 10% equity.

"Although two-year fixed rates are cheaper, there will be more costs to switch to another deal in two years, plus the risk that such good rates won't still be available.

"Therefore, five-year fixed rates offer the best value for most people, providing they don't plan to move within the five years.

"The reason for this caveat is that porting a mortgage (moving house and taking your old interest rate on the original loan with you) is not as easy as it used to be and so there is a greater risk that anyone moving home may have to pay the early redemption charge if moving within the fixedrate period."

The higher the amount of your mortgage, the bigger the savings you will make. Those with small mortgage balances or those with just a few years remaining on their loan may do just as well staying put as the cost of switching (lending fee, valuation and legal fees, etc) probably mean it's not worth the effort.

Also, as the SVR remains the same, whatever your loan-to-value (ie the size of your deposit), those with smaller deposits may find it much more appealing to stay put, at least for the time being.

With rates at record lows, now could be the time, though, for the millions on higher SVRs to think about fixing and locking in to a deal so they can benefit from cheaper monthly repayments. By fixing now you won't be in for any nasty surprises, such as a rate rise and repayment hike that hits you out of the blue.

TIPS FOR REMORTGAGI

Make sure you do your sums and work out the total cost of a loan over the term, including all fees.

Don't be lured in by best-buy interest rates but get hit with fees, which can cost thousands of pounds.

Get an independent mortgage broker to crunch the numbers so you get the best deal for you.

Think before locking in long term. If you sell or move within the term of a mortgage you will suffer early repayment charges.

FINANCES FIXED BY LOW DEAL

MATT and Jo Field have managed to chop PS150 a month off their mortgage repayments simply by switching from their lender's standard variable rate to a fixed-rate deal.

"When Santander increased its SVR to 4.74% and our repayments shot up again, we decided it was time to see if we could find a better deal," says Matt, 30.

"We found a four-year fix with Nationwide Building Society at less than 4% and can't believe we have managed to save PS150 a month off our repayments. That cash will come in handy for our other household bills which keep rising," says Matt, an accountant who lives in London.

Matt and Jo, 29, will save PS7,200 in interest payments over the four-year term of the mortgage with their new 3.39% interest rate.

Matt says: "It's amazing how the savings add up. It means we have some peace of mind and know what our repayments will be, without the worry of any shock rate rises.

Wendy wins our PS3k prize

CONGRATULATIONS to lucky Wendy Harris, who has scooped the PS3,000 prize in our Win A Bill-Free Christmas competition, supported by Bacs, the people behind Direct Debit.

Retired craft instructor Wendy, 65, who lives in the tiny village of Frosterley, County Durham, with husband Dave, a former design engineer (right), said: "I was completely shocked when I got the phone call to say I'd won. This prize will make such a difference to us, especially with the cost of living so high at the moment.

"We already pay most of our bills by Direct Debit - it's the best way for us as we live in a remote location and going to the bank costs a fortune in petrol.

"Now we can pay all our bills without a worry and make Christmas really special. I'm so grateful to the Mirror and to Bacs."

Bacs research shows that the average family spends PS1,000 a month on regular bills. That can feel like a huge amount of money when the family purse is under pressure at times like Christmas.

Mike Hutchinson, from Bacs, said: "We're so pleased to give a bill-free Christmas to Wendy and hope she has a fantastic festive season.

"This time of year puts the budget under more stress, but people can make significant savings by changing the way they pay their bills. Switching to Direct Debit spreads costs, keeps budgets simple and saves time."

base Pegging the interest on a PS150,000 loan could save PS1,000 in the first year BEST-BUY FIXED-RATE MORTGAGES BANK TERM RATE FEE Co-operative Bank 2 years 3.99% no fee 10% DEPOSIT Loughborough BS 3 years 4.09% PS499 Loughborough BS 5 years 4.24% PS599 Co-operative Bank 2 years 3.59% no fee 15% DEPOSIT Co-operative Bank 3 years 3.79% PS999 Co-operative Bank 5 years 3.79% no fee Cumberland BS 2 years 2.59% PS699 Yorkshire BS 3 years 3.14% PS495 25% DEPOSIT Post Office 5 years 2.99% PS1,495 HSBC 2 years 1.99% PS1,495 HSBC 2.79% PS499 3 years 40% DEPOSIT HSBC 5 years 3.19% PS499 Post Office 5 years 2.99% PS1,495 SOURCE: MONEYCOMMS.CO.UK

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SAVINGS Matt and Jo Field
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Title Annotation:Features
Publication:The Mirror (London, England)
Date:Dec 19, 2012
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