High SVRs may not hurt clients with small balances

11 January 2010 | By Natalie Thomas

High SVRs may not necessarily spell trouble for every borrower, according to Moneynet.co.uk.

Some lenders’ SVRs are hovering around 6% despite the Bank of England base rate being left unchanged at 0.5% since last March.

Data compiled by Moneyfacts shows that Chesham Building Society has the highest SVR at 6.45%. And Marsden Building Society recently pushed its SVR up to 5.95%.

Ketan Yadav, director at Avenue & Co Private Finance, says: “Building societies are showing a determination to maximise profits and with the Bank base rate at 0.5% these sorts of SVRs are shocking.”

He adds that many borrowers are likely to be prevented from remortgaging with other lenders because of falling house prices and tighter lending criteria, causing more affordability problems.

But Andrew Hagger, a spokesman for Moneynet.co.uk, argues that it could be sensible for borrowers with small outstanding balances to remain on relatively high SVRs.

Based on his calculations a borrower with a balance of £40,000 with 10 years remaining would pay around £443 a month at 5.99% SVR.

If the borrower switched to an alternative two-year fixed rate deal with Leeds Building Society at 4.75% with a £999 fee, their monthly payments would be £436 - a saving of just £7.

But Hagger adds that on a larger balance of, say, £70,000 switching would make sense.

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