Typically these households have come off fixed term discounted mortgage deals which were available two or more years ago. Lenders SVRs, currently averaging [5.04 per cent]¹ are now well above current best buy deals; e.g. Yorkshire ’s 3.49 per cent 2 year variable rate tracker.²
However in the present environment the most competitive deals are only available for loans that have low LTV ratios, typically less than 85 per cent (meaning over 15 per cent in equity). Those coming off special deals on to SVR, but with LTVs remaining above 85 per cent, will be unlikely to remortgage to a more attractive rate.
The good news is that 75 per cent of the current 2.3 million SVR mortgage payers are ‘free to move.’ These 1.7 million (21 per cent of the total UK mortgage market) who have LTVs below 85 per cent have over £116 billion mortgage assets and are free to move to more competitive rates that could collectively save them up to £1.8 billion a year interest payments.³
In addition, the good news for first-time buyers is that the market is starting to open up and it is possible to get deals at 90 per cent LTV.
The Yorkshire ’s website has a ‘3 Minute Mortgage Check’ calculator which quickly allows people to find out how much they could save by switching mortgages. Eight out of ten users have found that they could reduce their monthly mortgage payment at www.3minute.co.uk
The bad news however is that 440,000 mortgage payers are on SVRs with LTVs above 85 per cent (357,000 are above 90 per cent LTV). These mortgage borrowers, with loans totalling over £68 billion, are currently unlikely to obtain the best buy new deals due to lack of equity.
The number of such high LTV SVR mortgage payers, trapped in mortgage limbo, has risen significantly from a year ago and this rise comes despite the near 10 per cent increase in house prices over the last year.4 This rise is almost entirely due to households coming off special discounted deals which were previously available for higher LTVs before the credit crunch.
These trapped mortgage payers represent 19 per cent of all SVR payers, and about 5 per cent of the total number of mortgage payers in the UK (one in twenty). The only way these borrowers can obtain a better deal is if house prices rise further, or lenders relax their credit criteria to offer more competitive 90 per cent or 95 per cent LTV deals.
For every one per cent rise in UK house prices, approximately 16,000 mortgage payers will move below 85 per cent LTV and enjoy mortgage freedom5. However, with last week’s Government Budget, further house price rises over the next 12 months are deemed more unlikely, prolonging the agony of mortgage payers trapped on uncompetitive SVR deals.
Tom Girling, mortgage product manager at Yorkshire Building Society commented: “A record number of mortgage customers are currently stuck in ‘mortgage limbo’ on SVR rates that are generally far higher than best buy deals. Our analysis shows that the vast majority could make significant savings by switching to a better rate mortgage and with 80 per cent having at least 15 per cent equity in their home, they are free to switch lender right now.”
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