Lenders who are charging high standard interest rates are causing mortgage borrowers to pay tens of thousands of pounds a year more than those borrowing from competitive lenders.
This is due to the wide variation in standard variable rate (SVR), being set by different lenders. This is causing a difference of almost ?5,700 a year on a ?150,000 home loan.
According to Moneyfacts, Lloyds TSB, its mortgage arm Cheltenham & Gloucester, and Nationwide Building Society are among the lenders who are providing the lowest SVR rate at 2.5 per cent. The most expensive rate is provided by Chesham Building Society at 6.45 per cent, with small societies having high SVR rates – Nottingham, Newcastle, and Stroud & Swindon building societies who charge 5.99 per cent (at the time of writing).
Moneyfacts provided an example of the difference by looking at a borrower with a ?150,000 mortgage. If they were charged 2.5 per cent they would pay ?3,997 a year in interest but if their interest bill was on the same loan from Chesham Building Society, they would pay ?9,686. The difference would be ?5,689 a year.
Some customers are forced to pay high SVRs because they do not have enough equity in their home to switch to another deal.
Michelle Slade of Moneyfacts said on the Telegraph.co.uk website: ?Some borrowers on SVR may have paid more than double for the same mortgage than if they had been with a different lender. Those who have remained on the highest SVRs are likely to be those with little equity, which diminishes their options. Many lenders? SVRs have become disjointed from base rate, with only a fraction of the cuts having been passed on.?
It seems that borrowers paying low SVRs are better off than even borrowers who chose those competitive deals available now.
