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With home-owners eagerly anticipating a reduction in Bank of England base rates in the coming months, it was disturbing to see Standard Life Bank announce an increase in its variable mortgage interest rate. Standard Life’s Freestyle range of mortgages has been popular with contractors because of the flexibility offered from this relative newcomer to the mortgage market, but the cost of borrowing from this niche lender looks set to be on the increase. Tony Harris of Contractor Money, a specialist mortgage advisor, explains, “Unlike mortgages that track the Bank of England’s base rate, a mortgage that is priced at or discounted to the lender’s standard variable rate is far more exposed to the commercial needs of the individual bank or building society. “If the base rate drops and you are on, say, a tracker mortgage, the lender must pass that saving on to you. With standard variable rate schemes you can only hope that the lender will follow the lead of the central bank.” US 'sub-prime' on your doorstep Financial markets are still in a state of turmoil after four months of fallout following the credit crunch and it appears that Standard Life are re-pricing in comparison with the rest of the mortgage market as a result of global events. Problems with so called ‘sub-prime’ lending in the US has led to a tightening of the debt markets which has, in turn, made life difficult for many mortgage lenders. Mortgage companies have become far more risk averse in terms of who they will lend to and have sought to price risk into their mortgage rates after several years of cut-throat competition. Initially it was only those borrowers who had had problems with their credit history or wanted non-conforming mortgage schemes that suffered greater costs and less choice. Two-thirds of all adverse credit mortgages have already disappeared and now, it also seems that mainstream mortgage lenders are feeling the pinch as well. Interest rate inertia may sting contractors Borrowers are being warned not to let inertia cost them dearly in terms of mortgage repayments. Tony Harris cautioned: “In the wider mortgage market, one in five people are paying their lenders Standard Variable Rate (SVR). My fear is that, because contractors are time-poor, busy professionals, they may well be even more likely to be on the SVR and be paying more than they need to. “The SVR increase by Standard Life in particular will affect the many freelancers who will not have re-mortgaged after initially low rates expired because the bank’s SVR has been relatively low compared with the general market since they first launched. “Contractors may not appreciate that Standard Life’s and other SVR-based mortgages will no longer be as competitive and should review their options to avoid paying over the odds.” Dec 4, 2007 Email this article Printer friendly page Previous Page
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