When you're coming to the end of a fixed rate mortgage term, deciding whether to remortgage or simply revert to your lender's standard variable rate (SVR) will often come down to how much higher the SVR is, and whether the hassle involved in remortgaging is worth the switch.
Well, our figures show that remortgaging is becoming increasingly worthwhile, as those approaching the end of a two-year deal could face the highest rate jump in eight years if they choose to revert instead of remortgage.
That's according to data from the latest Moneyfacts UK Mortgage Trends Treasury Report, due to be published later this week. It highlights that those who opted for a cheap two-year fixed rate mortgage two years ago are theoretically far more likely to remortgage to a new deal, as the difference between the current SVR and the average mortgage rate of two years ago is the highest it has been since 2008.
Indeed, the average two-year fixed mortgage rate stood at 3.06% in March 2015, while the current average SVR stands at 4.56%. This means that, if you choose to revert, you could face a typical rate increase of 1.50%, which could potentially add a huge amount to your monthly repayments – an average of almost £2,000 every year, in fact.
Charlotte Nelson, finance expert at Moneyfacts, explains: "Two years ago the mortgage market experienced an aggressive drop in rates, which saw the average fall from 3.41% in October 2014 to 3.06% in March 2015. Borrowers who took advantage of lenders fighting to be the lowest in the market at the time could now find a difference of 1.50% between their previous fixed rate and the current average SVR (4.56%).
"Despite the base rate standing at a record low, borrowers will be shocked to find that their monthly repayments could increase by an average of £163.81 a month or £1,965.72 a year if they settle for the SVR [based on a £200,000 mortgage over 25 years on a repayment-only basis].
"This could provide a strong motivation to remortgage, with the remortgage market having already seen substantial activity in recent months as customers have continued to take advantage of the record low rates. Especially as the average two-year fixed rate stands at 2.33% today, sitting on a lender's SVR should be avoided if possible.
"Faced with such a big jump in monthly repayments, it clearly pays for borrowers to shop around and remortgage. However, remortgage customers must consider all aspects of the mortgage to ensure they are getting the best deal for them."
Sam: 9th Mar 2017 09:00:00
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