According to data specialist Defaqto, HSBC was the cheapest mortgage lender for existing borrowers during 2007.
Like all statistics this one needs to be looked at a little more closely and before we hail HSBC as the cheapest lender in the market, it is important to highlight that Defaqto was referring to the costs incurred by borrowers on the bank’s standard variable rate (SVR).
In assessing how worthy the mantle of cheapest SVR lender is, there are a number of points to consider.
How important is SVR? How many borrowers end up paying SVR? Will more borrowers be forced on to SVR during the course of 2008 and how could brokers and lenders better serve their clients when it comes to SVR?
Not a high priority
In the first instance the basic truth is that SVR is not very high on the list of priorities when it comes to assessing a mortgage.
Indeed, Ray Boulger, senior technical manager at broker John Charcol, feels it is little more than irrelevant, while Phil Rickards, head of sales at BM Solutions, comments: “Brokers recommend a mortgage based on the suitability of the overall product, and not the strength or weakness of one particular feature.
"SVR may form part of this decision, but it is only one part. Fees, interest rates and product criteria will all feed into the overall choice.”
Indeed, for some the SVR offered by a lender does little more than give an indication as to what sort of a player the company is and those offering a more conservative rate tend to mirror this throughout their entire product range.
The problem, however, is that in paying such scant attention to the SVR, borrowers tend to forget about it altogether and there are a significant number who end up paying through the nose for their mortgage because they have not acted quickly enough as their existing deal has come to its end.
An active choice
According to the Council of Mortgage Lenders, between 3 per cent and 5 per cent of new mortgages and remortgages are based on SVR. This may not seem like a lot but it accounted for just under 70,000 people last year.
These people have actively chosen to go down this route. It may be that there is only a short period of time to run on their mortgage and it is more economical to do so at SVR than arrange fees for a new product.
It may be that they are moving house in the coming months and so it is again easier to avoid the fees and potential redemption penalties that would be incurred with a new mortgage.
Whatever the truth, the fact of the matter is that less than 5 per cent of borrowers in the country choose to take out SVR products.
