JOHN, 55, owns a house worth £1 million. He has an interest-only mortgage with Portman for £220,000 on a standard variable rate (SVR) of 6 per cent. He also owns three buy-to-let properties. His three mortgages for these are with the Royal Bank of Scotland, on standard variable rates of 7.14 per cent. All his mortgages are interest-only and have ten years left; he wants to find some better deals.

James Cotton, of London & Country Mortgages, says: With four mortgages totalling more than £900,000 and all at SVR, John stands to make an enormous saving by remortgaging to better deals. He should no longer be tied in with early repayment charges, but it is worth checking this with his lenders. On his residential property, he has plenty of equity and, assuming he has sufficient income, he can cut his interest rate and monthly payments considerably.

With his amount of debt, he may prefer fixing some or all of his rates to provide some security. But if he is managing to make all his payments on SVR, affordability is probably not an issue and he may be happy sticking with variable rates. Cheltenham & Gloucester, for example, has a two-year tracker at 4.94 per cent with a £999 fee and free valuation and free legal work for remortgages. If he switched to this, he would cut his monthly payments by £421, a saving of more than £5,000 a year.

John could make similar savings on each of his buy-to-let properties. Buy-to-let mortgages are assessed on the property’s rental income rather than the applicant’s own income — lenders typically require the rent to equal about 125 per cent of the monthly mortgage payments or more. There are deals that require less rental cover, but they tend to charge much higher arrangement fees.

Based on the amount of equity John has in each property, he won’t have a problem getting new deals and should not have to pay excessive arrangement fees if they are not in his interest.

BM Solutions has a two-year tracker at 0.09 per cent above base rate with a £599 fee and refunded valuation fees. This would cost £1,014 a month, a saving of about £400 a month for each property.

All in all, a bit of time spent shopping around or talking to a broker could save him at least £15,000 in one year, even after arrangement fees and legal costs, etc.

Finally, he seems happy to keep his residential mortgage on an interest-only basis, and if he does so he must make sure that he has a plan in place to repay the loan in ten years’ time.

London & Country: 0800 373300

JARGONBUSTER

What is a standard variable rate?

The Bank of England sets a base rate, which is the basic interest rate. The mortgage lender’s standard variable interest rate (SVR) is set higher than the base rate, say 1 or 2 per cent above it. So if the base rate is 5 per cent and a mortgage lender is charging 2 per cent above the base rate, the borrower will be paying 7 per cent interest.

The Bank of England can change the base rate at any time. So if it raises it by 1.5 per cent, the SVR mortgage will go up by the same. In other words, the mortgage is variable because it goes up and down in accordance with the base rate.

Borrowers who fail to monitor regularly the value of their mortgage deal tend to end up on standard variable rates. The repayments on these tend to be uncompetitive when compared with special offers in the market.

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