Homeowners who are coming to the end of their two year fixed rate mortgage deal should consider switching to a new deal to avoid an average 1.93% increase in mortgage repayments on their provider’s standard variable rate (SVR).
Research carried out by Moneyfacts.co.uk has found that the average two year fixed mortgage rate on 27 July 2018 was 2.53%, while the current SVR currently stands at 4.46%. This means that homeowners at the end of their two year fixed deal and who revert onto their provider’s SVR will see an average 1.93% increase in their monthly mortgage repayments. For example, a homeowner with £250,000 left on their mortgage to be repaid over 23 years at the average SVR of 4.46% would make £1,449.99 in repayments per month.
The current average two year fixed rate on all loan-to-values (LTV) currently stands at 2.05%. This is 2.41% lower than the current SVR rate and means that if a homeowner switched onto a new two year fixed deal on a £250,000 mortgage to be repaid over 23 years, at the average two year fixed rate of 2.05%, the monthly repayments would be £1,136.82. This is a reduction of £313.17 per month and £3,758.04 over 12 months.
Back on 27 July 2018, the average two year fixed rate on a 60% LTV was 1.89%, while today the average rate is 1.72%. This means that homeowners who lock into a new two year deal with a £250,000 mortgage to be repaid over 23 years, would at the average rate of 1.72, have monthly repayments of £1097.39. Compared to the monthly repayment at SVR, this is a reduction of £352.60 per month and £4,231.20 over 12 months.
Looking in the remortgage charts, there are rates lower than 1.72% available on a 60% LTV deal. For example, the lowest rate at 60% LTV in the two year remortgage chart is currently being offered by Lloyds Bank, which offers 1.09% fixed until 30 November 2022. Locking into this mortgage using the example of a £250,000 mortgage would result in monthly repayments of £1,024.49.
The average two year fixed rate on a 75% LTV on 27 July 2018 was 2.3%, whereas today the average rate has fallen to 1.96%. This means that homeowners with a £250,000 mortgage would, at the average 75% LTV two year fixed rate of 1.96%, have monthly repayments of £1,125.98. This would be £324.01 per month lower than the average repayment at the SVR and over 12 months would be £3,888.12 lower.
The lowest 75% LTV rate being offered in the two year fixed remortgage chart is 1.14% fixed until 31 October 2022 from Leeds Building Society. Locking into this deal on a £250,000 mortgage would result in monthly repayments of £1,030.16.
Homeowners looking for a two year fixed deal at 85% LTV on 27 July 2018 would have found that the average rate was 2.51%. Today, the average rate on a two year deal at 85% LTV has fallen to 2.23%. Those looking for a £250,000 mortgage at an 85% LTV would find that, using the average rate of 2.23%, their monthly repayments would be £1,158.68. This would be £291.31 less per month compared to the SVR and £3,495.72 less over 12 months.
In the two year fixed remortgage chart, the lowest rate being offered at 85% LTV is 1.44% fixed until 30 November 2022 from Lloyds Bank. Homeowners with a £250,000 mortgage looking to lock into this deal will have monthly repayments of £1,064.60.
While the average rates on 60%, 75% and 85% LTV have all fallen since 2018, over the last month these average rates have started to rise. On the 1 July 2020 the average 60% LTV rate on a two year fixed deal was 1.69%, today it stands at 1.72%. Similarly, on the 1 July 2020, the average 75% LTV and 85% LTV rates on two year fixed deals stood at 1.92% and 2.11% respectively, whereas today these rates now stand at 1.96% and 2.23% respectively.
“With the average SVR likely to remain more static moving forwards and the mortgage market itself remaining fluid, as lenders continue to amend their ranges in reaction to an ever-evolving landscape, there is no guarantee that rates will not continue to increase,” explained Eleanor Williams, finance expert at Moneyfacts.co.uk. “However, as there remains an almost 2.50% difference between the average SVR and the average two-year fixed rate today, the benefits of switching speak for themselves, as being able to save significantly on monthly outgoings could be more important than ever in these uncertain times.
“Those who wish to explore whether they are able to reduce their rate, and consequently their monthly mortgage payment, would do well to move swiftly. As with any financial commitment, seeking advice from an independent, qualified adviser has never been more relevant, as understanding the true cost of any new deal, taking into account any fees and incentives, and indeed keeping up-to-date on the available products and criteria could be made significantly easier with assistance from a professional.”
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