Mortgage Standard Variable Rate Con

Mortgage Standard Variable Rate Con.

The European Monetary and Economic Affairs committee recently voted through a number of draft proposals, one of which could force lenders to align their variable rates with some form of reference rate, such as the Bank of England base rate.

The proposals state that where the credit agreement is a variable rate loan, member states shall ensure that any index or reference rate used to calculate the borrowing rate is clear, accessible, objective and verifiable by the parties to the credit agreement and the competent authorities.  This has been interpreted by some as meaning lenders would no longer be able to hike their SVR without clear justification and would need to link it to some form of external reference rate.

Many mortgage lenders are free to set their own Standard Variable Rate (SVR) after your fixed rate, discounted rate or tracker rate ends.  Despite the current low interest rates, many borrowers find themselves dumped on by their lenders with high SVRs.  

You know the picture? Bank of England base rate 0.5%pa yet your standard variable rate is 5.35%.  In short, many are not benefiting from the current low interest rates.  This is just not treating customers fairly.

According to the Council of Mortgage Lenders, they will be seeking clarification on whether the proposal means lenders will need to change the way they calculate their SVR.  It also needs to clarify whether the proposal only relates to those lenders that currently calculate their SVR based on a reference rate or whether the directive is proposing that all lenders need to calculate their rate this way.