Future SVR on new mortgage - worth considering?

potter78_2

Hi guys.

Having sold my house about 18 months ago, I'm now in the process for looking for a new one. Looking at houses between 150k - 200k, with approximately 15-20% deposit (I'd like to get it up to 20%, but that may not be possible).

Having just done a quick browse on Moneysupermarket for the current deals, I can see 3.99 Tracker from A&L reverting to 4.99%, a 3.94% discount mortgage from Leek BS (reverting to 5.19%), and a 4.49% tracker from C&G reverting to 2.50%.

Obviously the 4.49% C&G rate is the most expensive of the 3, but is there any value in going for this sort of mortgage as their current SVR is so much lower i.e. having finished the two year period the payments would be much lower. Or is the current SVR an unreliable indicator of what you would have to pay over base rate in the future?

Also, on an entirely separate note, if I find a good rate is it worth applying for that rate now with a view to reserving it, or would I have to pay an unrefundable application fee?

Thanks

beecher2

I wouldn't worry too much about the SVR as who knows where they will be at the end of your term. I would however look at ERCs for your deals as they have really high margins over the base rate. 3.99% over base rate is going to look very expensive when base rates go up - your gamble is whether they will go up dramatically during your term, and how much it'll cost you to get out of it and get another deal. You also have to weigh up where your LTV will be if house prices decline.

VIGILANT22

The SVR is an indicator of how much over base you would pay...but how do you know what base rate is going to go to??...Look what has just happened at Skipton, a small clause in the contract allowed them to move the SVR by approx 1.5%.....most lenders do have this "exceptional circumstances" clauses to protect themselves........don't calculate yr affordability around current rates....an exercise is to calculate at 10% and see how that would fit in yr budget

potter78_2

beecher2 wrote: »

I wouldn't worry too much about the SVR as who knows where they will be at the end of your term. I would however look at ERCs for your deals as they have really high margins over the base rate. 3.99% over base rate is going to look very expensive when base rates go up - your gamble is whether they will go up dramatically during your term, and how much it'll cost you to get out of it and get another deal. You also have to weigh up where your LTV will be if house prices decline.

But if base rates do go up, then it's better to be on a reasonable SVR than an expensive one (see the other two deals). I'm confident I could stomach high base rates for a couple of years if necessary, but wouldn't want to be stuck with a bad deal for several years. The alternative is to carry on renting, slowly add to my deposit and hope to get a better mortgage deal in the future but I imagine when mortgages get cheaper, house prices will start to get more expensive.

VIGILANT22 wrote: »

The SVR is an indicator of how much over base you would pay...but how do you know what base rate is going to go to??...Look what has just happened at Skipton, a small clause in the contract allowed them to move the SVR by approx 1.5%.....most lenders do have this "exceptional circumstances" clauses to protect themselves........don't calculate yr affordability around current rates....an exercise is to calculate at 10% and see how that would fit in yr budget

Again, I understand your logic and I have fully considered the affordibility (although I doubt many people wouldn't feel the pinch at 10%). If base rates go up, the only way to protect yourself is to get a long-term fixed, but if they stay low (like Japan's did) then your paying way over the odds for a number of years. Surely it's an educated guess either way.

beecher2

potter78 wrote: »

But if base rates do go up, then it's better to be on a reasonable SVR than an expensive one (see the other two deals). I'm confident I could stomach high base rates for a couple of years if necessary, but wouldn't want to be stuck with a bad deal for several years. The alternative is to carry on renting, slowly add to my deposit and hope to get a better mortgage deal in the future but I imagine when mortgages get cheaper, house prices will start to get more expensive.
.

Two years ago, most SVRs would've been around 7%. Have a look at this from just 14 months ago

http://www.thisismoney.co.uk/mortgages-and-homes/mortgages-features/article.html?in_article_id=456662&in_page_id=58&ct=5

You would maybe have picked a First Direct product from looking at that, but now their SVR is 3.69% as opposed to C&G's 2.5%.

Since you don't want to be stuck with an expensive product, you need to look at the Early Repayment Charges and weight them up - do you know what they are?

potter78_2

beecher2 wrote: »

Two years ago, most SVRs would've been around 7%. Have a look at this from just 14 months ago

http://www.thisismoney.co.uk/mortgages-and-homes/mortgages-features/article.html?in_article_id=456662&in_page_id=58&ct=5

You would maybe have picked a First Direct product from looking at that, but now their SVR is 3.69% as opposed to C&G's 2.5%.

Since you don't want to be stuck with an expensive product, you need to look at the Early Repayment Charges and weight them up - do you know what they are?

Thanks for the link, that was the sort of thing I was looking for i.e. how much of a guide the current SVRs are to what they could be in a few years time. The fact they were 7% is just a reflection of the base rates at the time (which is more of a general affordibility issue, than a specific issue in choosing a mortgage deal).

Yes (but thanks!), I understand what ERCs are. I'm just not particularly concerned about them on a 2 year deal where the benefits of changing mortgage during that period are never going to worth considering (especially when all the mortgages are portable)

getmore4less

The follow on rate is an essential part of of any deal.

SVR may not be ideal if the lender has a bad record or can set this at will.

A base rate tracker rate may be a better option to give some(limited) control.

You have no control over the actual rate but do over the relative rate to other deals you are looking at this is what needs considering.

You have to take into account you may not be able to change lender or deal with the current lender so without considering the follow on rates on any deal is neglegent when you sign up for the long term.

Anyone that suggests otherwise is failng to understand the debt you will be commited to paying back.

busybee100

VIGILANT22 wrote: »

The SVR is an indicator of how much over base you would pay...but how do you know whatbase rateis going to go to??...Look what has just happened at Skipton, a small clause in the contract allowed them to move the SVR by approx 1.5%.....most lenders do have this "exceptional circumstances" clauses to protect themselves........don't calculate yr affordability around current rates....an exercise is to calculate at 10% and see how that would fit in yr budget

Is this still true? I thought it was until Woolwich/Barclays decided to fix mine at 4.49% above base after 4+ years into a fixed 5 year mortgage.

Bx

VIGILANT22

potter78

Have a read here, you may find this interesting...historical base rates...bet yr mum and dad have had a 10% mortgage in the past..:)



http://moneyworld.com/bank-base-rates.htm

potter78_2

err thanks I'm not saying they won't get back to 10% (although I think it's unlikely). I just think it would be crazy to base affordibility on that sort of interest rates. Anything could happen in the next years, from going bankrupt to winning the lottery. All I can do is make a considered, risk-based decision when I find a house I like.

VIGILANT22

I think you may find if you speak to professionals 10% is not a "crazy" calculation when it comes to assessing future affordability....