SVR to rise more slowly than tracker?

MrChips

I took out my first mortgage in 2010, a tracker with HSBC at around 1.5% above base rate for the duration. With the base rate forecast to rise in the not too distant future I've been reviewing my options and am thinking of moving to an offset mortgage with the Beverley building society. This is currently running at 1.95%, based on a two year fixed discount to their standard variable rate.

It just occurred to me that before the financial crisis the margin between svrs and the base rate was smaller. Does that mean it's reasonable to expect svrs to increase more slowly than the base rate once it does start to increase?

Is hard to believe that the margin will still be typically 4% or so when rates eventually return to long term norms of 5%, even if that's many years away...

GMS

SVR can change at any time with no relation to base rate.


If you have a lifetime tracker at 1.5% over base you should consider moving to a long term fix if you are concerned, not jumping into something that could be cheaper today and more expensive tomorrow.

tigsly

Isn't 1.5% quite a good rate to be tracking at.. I'd have thought SVR would always be more than 1.5% above ...

Of course I guess there is a time when you might fix and be lower than base rate - if you fix at 5% then rates go up to 15%.. (Mind if rates go as high as 5% in a 'quick way' the country would be in a bad way with lots of folks being reposessed..)

MrChips

Thanks both. I am aware of the risks, but the key feature of the new product is the offset facility. I reckon I'll be able to be more or less 100% offset in a couple of years so I'll be immune to changes in interest rates/SVR by then.

In the meantime I will be on a marginally lower rate than I am now (there are no remortgage fees on this product) and if my logic in the original post is correct then any changes in base rate should be reflected by no more than an equivalent change in the SVR (I accept I could be wrong on this, just looking at the balance of probabilities here).

Thrugelmir

On the balance of probabilities. SVR's will return to pre credit boom margins of 2% above base. Allowing for higher regulatory fees and taxation imposed on the banks. Average SVR's when normality returns could be nearer 2.5%

Part of the reason for this is that the banks are returning to traditional lending reducing mortgage exposure. Whereas it is the Building Societies who are lending more.

Personally I wouldn't leave a lifetime tracker rate of 1.5% above base. As at some point in the future this level of rate may simply not be available. HSBC won't underprice their products if the other lenders rates are far higher.

What's the best lifetime tracker rate HSBC offer now?

getmore4less

Why offset?

If you can get to 100% offset in 2 years then if you do need the money it will costs more to get it back once on the SVR.

With a base +1.5% you can probably find savings rates close/more to run your own "offset" fund, will depend how much you need to keep back.

Combinations of monthly savers and ISa will soak up quite a bit of cash at more than 2%net.

MrChips

Just back from holidays so able to return to this thread now after a brief hiatus. Thanks for replies so far, I'll try and clarify my logic a bit better.


We have an outstanding amount of around £270,000. To date I've been happy to stick to the HSBC tracker rate of 1.99% pa (1.5% above base rate) as my savings have been earning more than this and there's been no expectations of rate rises. However I've reached the point where all spare cash is now used in high interest paying current accounts (Santander, Nationwide, Lloyds etc) and remaining cash is now earning less than the mortgage rate which doesn't make financial sense to me.


So with prospect of rate rises over on the horizon and cash earning (effectively) negative interest I explored our options. With the Beverley offer, I can move to a new product fees-free, pay a lower rate than currently (for the short term at least and likely for the next two years) and earn a higher rate on my spare cash.


In two years when I will be (I hope) mostly offset I can move to the lowest fees-free offset product (e.g. First Direct currently have one for around base rate plus 2.5% pa).


I have no expectations of needing to access the cash so am not overly concerned about having to pay higher interest in the event of withdrawing funds. It's just nice to know it's there if I do need it, or if other opportunities arise where I can earn a higher rate of return than the interest rate I'm paying.


I know I could use regular savers to marginally boost my current savings rate but these typically allow modest amounts to be paid in which is too much hassle to me for the associated gain.


I have some ISA savings built up too, but can't move these to the offset so have left these out of my considerations. They are currently in a five-year bond with Newcasle Building Society paying 5% pa but will mature at the end of this month. Thinking of moving them to First Direct paying 2.0% pa. If I can't earn more on these than the mortgage rate then I have a dilemma as to whether to cash them in or hold on in the hope that the tax-free rate returns to higher than mortgage in the medium term...

I also considered fixed rate mortgage products, but these typically have high fees which negate potential savings, have materially reduced flexibility, and have high short term interest rates (relative to what I'm paying now) which is when I will have the largest outstanding balance. E.g. 2.94% pa fixed for five years with HSBC it will probably take another 2 or so years for my current product to move above this level by which time I don't expect to have any balance left (assuming taking offset route).

To answer an earlier query, HSBC does still have the 1.5% above base rate lifetime tracker available, although I think there is now a fee to pay to get it (£999).

Thrugelmir

Unlikely that cash savings rates will exceed lending rates going forward. We are living in abnormal times, where the need for financial stability has taken precedence. Now that banks and other financial institutions appear to be stable (though not entirely fixed). The focus is returning to fiscal policy.

Personally I would overpay the mortgage if there are no suitable savings accounts available.

getmore4less

if you can get 100% offset (on £270k) in a short period will you continue to generate surplus cash?


If you will, you need a longer term investment strategy.

MrChips

Thanks again. Part of me thinks I should just pay it off, but if I can find an offset to cover 100% with no fees I can't see a downside to keeping it there "just in case".


We should continue to generate surplus cash, although if my wife goes on maternity leave again that will slow us down a bit - and you never know what the future holds in terms of health. Most likely we'll keep the offset until we've built up an excess of a few tens of thousands then just get rid. I'll probably need to consult in IFA in case they have a better idea.

getmore4less

Agree once set up they are a no brainer to keep going(except if you need benefits) as they provide instant access to funds at a decent rate.