If you're coming to the end of a fixed term on your mortgage, you may be wondering what to do next. Do you remortgage to a new deal, or save the hassle and revert to your lender's standard variable rate (SVR)? Well, remortgaging will invariably be the way to go, as research from HSBC has found that homeowners on their lender's SVR are paying thousands of pounds more than they need to.
The figures revealed that homeowners on a typical SVR, which currently stands at 4.82%, could be paying an average of £4,000 a year – or £329 per month – more than if they remortgaged to a new two-year fixed deal, which can be over 2% lower in some cases. Not only that, but if they wanted longer-term repayment security and went for a five-year deal, they could save a whopping £15,000 over the five-year period, all through the simple act of remortgaging.
If you needed any further reason to turn your back on your lender's SVR, the research also went on to highlight the potential additional cost to homeowners should the Bank of England increase base rate: SVRs are variable and can change at any time, so are highly likely to react to any change in this key rate. If base rate were to rise by 1% and the average SVR followed suit, homeowners could be £480 a month worse off than if they fixed now, which would shield them from any rise in rate during the term.
Remortgaging really could save a typical household a small fortune, and to put it into context, HSBC calculated that remortgaging from an SVR to a market-leading fixed term deal could enable a borrower to:
The data suggests that almost 2 million borrowers are on their lender's SVR at a rate above 3%, and could therefore benefit from remortgaging to a more competitive fixed term deal. The benefits could be twofold, says HSBC's Tracie Pearce, as "a quick call to their lender to find out if they are on a SVR mortgage could not only be the catalyst for families to save a small fortune by switching to a more competitive deal, it would also provide certainty for family budgets".
Rachel Springall, one of our resident finance experts here at Moneyfacts, added: "Confidence is continuing to return to the housing market, and there are many great mortgage deals available right now for borrowers to choose from. Homeowners who are sitting on a standard variable rate could well kick themselves in the long-term if they don't research the market and move to a more competitive deal before interest rates go up, and it is inevitable they will at some point."
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