Standard Variable Rate Mortgage – Case Study

by | Wednesday 4th May 2022 | Mortgage Case Studies

Couple on the Standard Variable Rate are paying too much on their mortgage

Key facts:

  • Couple purchased their first property in the UK a few years ago but never had the standard variable rate explained to them.
  • Their mortgage was on an interest only basis but when their product term ended, they reverted automatically to the SVR.
  • They were paying a lot more for their mortgage per month but not understanding the UK mortgage market, they thought this was normal.

Our client:

Our clients were from a country outside of the UK originally. Having established good careers in the UK and making Britain their permanent home, they purchased their first house in London and opted for an interest only mortgage to initially keep the payments at a manageable amount.

They fixed their original mortgage with their lender over 5 years and had confidence that their mortgage had been explained to them clearly. However, it hadn’t been explained at all and our clients were not aware what the SVR was or that it was avoidable.

When their product reverted to the SVR, the clients who by now had progressed in their careers and were both earning significantly more than they were when they originally got the mortgage, were surprised by the sudden rise in payments. However, they assumed that this was normal for a UK mortgage and put it down to rising cost of living.

How did we help?

One of our previous clients learned about the ridiculously high interest rates that they were paying and recommended our advisor Oliver to see how he could help.

Oliver spoke to the clients initially on the phone to establish what had gone so wrong with their current mortgage deal. After having an in-depth conversation with the clients and getting to know their situation and finances in and out, Oliver learned that the clients had been paying way over the standard amount and for a long time as well.

Our client had an outstanding mortgage balance of £1,286,001 and should have been paying around £2,000 a month however they had fallen on to the standard variable rate around 2 years previous to contacting us! That meant that the clients were paying their loan at a rate of 3.59% or the equivalent of £3,837 a month for 2 whole years.

£92,000 on an interest only mortgage that could have easily been reduced and avoided with the help and guidance of an expert mortgage advisor.

Although a lot of the damage had already been done, Oliver sprang into action immediately to save the clients from paying any more than they needed to. He first looked at what the best route forward was, staying with their current mortgage lender or moving the clients to a new lender. After discussing with the clients their various options, Oliver found a much more competitive rate with another lender and advised the clients that they would be much better off moving to a new lender. The clients were happy with Oliver’s recommendation and Oliver and the team set about arranging a remortgage of their property to a new lender that wouldn’t cost them almost £4,000 a month.

Within 3 weeks, the new mortgage offer was made without any issues and the clients were no longer on the expensive SVR. Now in the hands of an expert advisor, the client’s mortgage will be monitored carefully and 6 months before the current fixed deal is due to end, Oliver will contact the clients again to discuss avoiding the SVR again.

What was the rate?

The loan was secured as a part interest only and part capital repayment mortgage on a fixed rate for 2 years at 0.84%. After the fixed period, they would revert to the bank’s 3.54% standard variable rate at which time we will contact the clients to discuss remortgaging on to another new competitive fixed rate.

The overall cost for comparison is 3.1% APRC. The arrangement fee was £999, and early repayment charges were applied. The mortgage term was 12 years.

If you or someone you know is in a similar position to our clients, please feel free to give our friendly team a call to see how we can help. And if you’d like to find out more about standard variable rate mortgages then read our article: What Is A Standard Variable Rate Mortgage?

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