Despite there being growing fears around rising house prices and potential increases to mortgage rates, research from Moneyfacts.co.uk has revealed some good news for homeowners – the true cost of the average two-year fixed rate mortgage has actually fallen over the last two years, potentially saving you thousands of pounds in repayments.
The figures show that a first-time buyer borrowing £150,000 over 25 years at 90% loan-to-value (LTV) will now spend £2,285 less over a two-year term compared to two years ago, while those borrowing 60% will save even more – on average £2,515 – by fixing today compared to March 2012.
True cost is the calculation that takes into account every cost associated with a mortgage, from its headline rate to its fees as well as any discounts, resulting in the actual monetary amount the mortgage will cost you over the term. Over the last two years, that amount has fallen.
There are currently 1,242 two-year fixed rate mortgages on the market today, up from 921 in March 2012. This 35% increase stems from competition stirred up by initiatives such as Help to Buy, resulting in more products being available at highly competitive prices.
The table below shows the comparison:
As you can see, the savings are clear.Sylvia Waycot, editor at Moneyfacts.co.uk, said: "The true cost measurement is the only one that really counts as it shows exactly how much will come out of the borrower's pocket over the term, and for once it is good news – today's average two-year fixed is costing over £2,000 less than a similar mortgage in 2012.
"The two-year fixed is traditionally the 'option of choice' as it offers a safe harbour from interest rate rises, but at the same time does not lock the borrower down so tight that they can't enjoy rate falls relatively quickly."
The two-year fix remains the mortgage of choice for a large proportion of borrowers, but although the true cost has fallen rapidly in the last two years, it isn't all good news. The average rate across two-year fixed mortgages has steadily risen since the withdrawal of the Funding for Lending Scheme in December – in January 2014, the average rate stood at 3.52% before increasing to 3.59% in February, with a further increase in March seeing the average hit 3.61%.
"The withdrawal of the Funding for Lending scheme means that banks have to self-fund mortgages and money markets jitter over just when the Bank of England will raise rates," added Ms Waycot, which means anyone hoping to benefit from a reduction in true cost needs to act fast.
These competitive rates won't be around forever and there are fears they could soon return to the levels seen two years ago, so why not make the most of them now? Given how much you could save, whether you're a first-time buyer or further along the property ladder it makes a lot of sense to get that mortgage (or remortgage) sorted as soon as possible.
Check out the best rates to see if you could keep your monthly repayments and the overall cost of the mortgage as low as possible, thereby ensuring you can continue to benefit from record low rates before they start to rise.
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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