Typically these households have come off fixed or discounted rate mortgage deals which were available two or more years ago. In principle these SVR borrowers are able to remortgage to a better deal without paying the early redemption penalty that would have applied throughout their fixed or discounted rate period.
However, often better mortgage rates are only available for customers with low Loan To Value (LTV) ratios. To be eligible for a sub 4% rate, a maximum 85% LTV (i.e. a minimum 15% equity) is necessary. While there are some loan offers available for 90% LTVs or above, invariably they have associated mortgage rates higher than the lender’s typical SVR.
The good news is there are an estimated 3.6 million SVR borrowers with LTV’s below 85% free to move to a better mortgage rate. This is up 22% since Q3 2011 and represents a significant 32% of the total mortgage market.
For a borrower, with equity of 15% and a loan of £150,000, on a typical SVR of 4.86%, moving to a two year discount rate of 3.84% would achieve an annual interest saving of £1,034. Collectively if the “free to move” SVR mortgage borrowers could find just 0.5% interest savings on their £301 billion outstanding loans, they could make a combined annual saving of over £1.0 billion in first year monthly repayments.
Peter Dockar HSBC head of mortgages, said: “The UK mortgage market has 3.6 million SVR borrowers who can switch to a more competitive rate. Even those with equity of just 15% could each save a potential £90 per month in interest payments.
“HSBC's 2 Year Discount Special for borrowing up to 85% LTV, offers a rate of 3.84%, well below the market average SVR of 4.86%.”
The news is less good for SVR borrowers on LTV’s of 85% or above who are effectively trapped in their current mortgage, unable to remortgage to a better deal.
HSBC estimates there are over 839,000 such “mortgage prisoners”, 19% of the 4.4m SVR mortgages currently in the market and 7.4% of all mortgages.
These borrowers have insufficient equity to move to a more competitive rate and are unlikely to be able to do so until house prices move up. The number of borrowers stuck with insufficient equity has risen strongly over the past year, up 40% since Q3 2011.
This has been mostly due to large numbers of borrowers coming off 2 to 5 year discounted or fixed rate deals, originally taken on in the years 2007-10, compounded by falls in house prices over the last year.
However there is hope for such borrowers as every 1% rise in house prices results in approximately 40,700 borrowers being able to transfer from the over 85% LTV band to the under 85% LTV band.
On average SVR borrowers who are “free to move” (LTV’s less than 85%) make up 31.6% of the total UK market. The regions with the highest proportion of “free to move” SVR borrowers are Wales (38.8%) and North West (35.1%). The regions with the lowest proportion of free to move SVR borrowers are East Anglia (26.7%) and Scotland (28.4%).
SVR borrowers who are “mortgage prisoners” (LTV’s more than 85%) constitute 7.4% of the total UK market. The regions with the highest proportion of “mortgage prisoners” (% of all UK mortgages in the region) are North West (10.2%) and Northern (9.9%). The regions with the lowest proportion of “mortgage prisoners” are East Anglia (4.4%) and South East (5.1%).
The greatest growth in “free to move” borrowers Q3 2012 on Q3 2011 has been in the North West (29.8%), Greater London (27.8%) and South East (27.5%).
The highest growth in “mortgage prisoners” since Q3 2011 has been in Scotland (75.0%) and Wales (60.6%). These regions have generally fared worse than the English in terms of house price falls over the last few years.
London’s relatively low numbers of trapped SVR borrowers (and high proportion of “free to move” borrowers) has been helped by the Capital seeing greater than average house price rises over the last few years.
