After the Financial Conduct Authority met last week with lenders over their being too slow to pass on increased interest rates to savers, the HomeOwners Alliance was keen to highlight the way banks seem to have found another way to maximise their profits at the homeowner’s expense – in the form of staggeringly high Standard Variable rates (SVRs).
Referring to SVR’s as ‘daylight robbery by the banks’, the HomeOwners Alliance said it is urging mortgage holders to check their mortgage deal to ensure they are not potentially paying thousands of pounds a year more on their mortgages than necessary due to soaring standard variable rates.
It pointed to the fact that those with Aldermore are now paying an SVR that is now 9.48%, Yorkshire Bank’s and Virgin Money’s SVR is 8.74%, while Barclays, Furness Building Society, Halifax, Lloyds Bank, and Scottish Widows’ SVRs now stand at 8.49%, according to data from our partners L&C.
To illustrate what this means for mortgage payments, the HomeOwners Alliance compared monthly mortgage payments on a £200,000 mortgage over a 25 year term, at these rates:
| Best 2 year fix rate available 5.53% (1) | Average 2 year fix rate 6.52% (2) | Barclays, Furness Building Society, Halifax, Lloyds Bank and Scottish Widows’ SVR 8.49%.
|
Yorkshire Bank’s and Virgin Money’s SVR 8.74% | Aldermore’s SVR of 9.48% |
| £1,232 | £1,353 | £1,609 | £1,643 | £1,745 |
(1) 2 year fix from Lloyds Bank at 5.53%. You’ll need a 40% deposit and it has an arrangement fee of £999. But it’s only available for remortgages.
(2) According to Moneyfacts, the average rate for a new two-year fixed-rate mortgage reached 6.52% on Thursday 6 July.
Paula Higgins, chief executive of HomeOwners Alliance, said: ‘The staggering SVRs we are seeing from some lenders at the moment – up to 9.48% – is nothing short of daylight robbery. If predictions that the Bank of England is going to hike interest rates further are correct, we could see SVRs soaring even higher. So we’re calling on all homeowners to check the rate they’re on. If it’s the SVR they need to switch quickly. And if their current mortgage term comes to an end in six months, start looking now to secure a rate and avoid defaulting onto the lender’s SVR.
‘The FCA needs to challenge this situation. Not only are the standard variable rates punitive, they are also completely inconsistent between lenders, making it harder for consumers to track.”
Ah! But that’s the industry for you…
The government has set advertising rules about how lenders you can market their financial products.
An then The Law of Unintended Consequences meets companies’ need to make profits and the following happens:
1. Adverts from the respected “Top Ten” lenders for competitive (i.e. as low as possible) interest rates only apply to a certain select cherry picked percentage of the population. But that’s OK because it’s government mandated.
2. The rest are bumped over to separate divisions of the same lender or have to go to other lenders with less attractive rates.
3. The market must be “competitive” because of de-regulation.
3. The industry settles into a need for churn, and the bronze/ silver/ gold marketing method is applied.
4. Bronze = variable rate (created to be a bit expensive and quietly made to feel really insecure)
5. Silver = 2-year fixed rate (created to look cheaper and presented with the veneer of security)
6. Gold = 5 year fixed rate (more expensive than the first two but comes with huge penalties if you have to move)
7. Borrowers are guided into constantly changing lenders round and round in circles for 2-year fixed rate deals.
5. Each time, huge fees are charged (for essentially nothing) and are nearly always added on to the mortgage.
6. Arrangement fees of £1,500 are fairly typical and probably costs the best part of £4,000 when paid back over 25 years.
7. Each time you remortgage, those fees are carried forward.
Apparently the average age people make their final mortgage payment is 59 and they probably started in their early 20’s, lets call it 18 re-mortgages over the typical borrower’s lifetime.
That’s £27,000 in arrangement fees, or perhaps £60,000 in monthly payments just to pay off the amortised fees (i.e. not the actual loan itself).
When you consider that the average mortgage debt in the UK is about £140,000 the figures above are scandalous.
There is no need for an early termination penalty in the form that we have in the UK. There just isn’t. We’ve just accepted the carrot & stick nature of it.
In most of Europe the length of the average fixed-rate mortgage is over 10 years.
Once again, the Great British public has been sold a lie and like zombies we’ve accepted it and all think it’s a great idea.
Remember, the system isn’t broken… It’s working exactly as it was designed! And it’s designed to keep already wealthy people nice and wealthy while the rest of us scrabble around in the dust.
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