Ex-fixed rate borrowers reap reversionary rewards - Mortgages - News - Moneyfacts

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Ex-fixed rate borrowers reap reversionary rewards

Ex-fixed rate borrowers reap reversionary rewards

Category: Mortgages

Updated: 14/12/2012
First Published: 24/10/2011

MONEYFACTS ARCHIVE
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Around 1.8 million mortgage holders whose fixed rate deals have come to an end are currently saving hundreds of pounds a month by being on their lender's reversionary variable rate.

On average, such households are paying around £2,600 a year less than they were under their previous fixed rate deal, the Council of Mortgage Lenders (CML) has revealed.

Although over half of the 1.8 million borrowers now on reverted variable rates have more than 10% equity and could potentially remortgage if they wished to, it seems many are happy to adopt a 'wait and see' approach.

According to market expectations, it is forecast that the base rate of interest will rise from its current record low of 0.5% to around 0.9% by the end of 2012 and to 2% by the end of 2014.

If this were to be the case, the CML estimates that 85% of those borrowers who have reverted to variable rates would still be paying less than their original mortgage payment by the end of 2012.

Furthermore, around 58% would still be paying less than their original payment throughout 2014.

CML director general Paul Smee said it appears most households will be able to absorb anticipated interest rate rises over the next few years without seeing the cost of their monthly mortgage payment rise above its original level.

"Many households have seen a significant windfall from reverting onto variable rates over the past few years, although this will be less true for those coming off short-term fixed rates in the near future," he added.

"The choice of whether or not to fix, and for how long, involves taking a view about the likely direction of future interest rates, along with a personal consideration of how much rate risk is acceptable to a household.

"Given the economic uncertainty, it is not surprising that for the time being many of those who have reverted onto variable rates and could remortgage are choosing to wait before they decide what to do next."

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