The financial incentive for mortgage borrowers reaching the end of their current fixed rate deal to remortgage to a new deal has soared to an 11-year high.
According to the latest Moneyfacts UK Mortgage Trends Treasury Report, borrowers could save more than £3,000 a year by opting for a new fixed rate mortgage rather than sitting on their existing lenders standard variable rate (SVR).
The main reason for this is that borrowers who took out a two-year fixed rate mortgage
two years' ago have been enjoying some of the lowest rates ever seen. Indeed, in January 2017, the average two-year fixed rate mortgage came with a rate of 2.31%.
Now, however, those borrowers who took advantage of these highly competitive mortgages two years previously will be moving onto a typical SVR of 4.90% unless they choose to remortgage
elsewhere. Not only this, but the 2.59% uplift in the rate they must pay is the most significant increase recorded since February 2008.
In terms of repayment amounts, the typical borrower with a £200,000 repayment-only mortgage over a term of 25 years could therefore expect to see their monthly payments rise by £279.34 a month – or £3,352.08 a year – if they remain on their current lender's SVR.
However, by choosing to remortgage to a new short-term fixed rate
deal – on which the average rate is currently 2.52% – their typical repayment would be £257.30 a month (or £3,087.60 a year) cheaper than if they did not remortgage.
Worryingly, separate research from L&C Mortgages recently found that a third of mortgage customers are currently sitting on an SVR.
"Borrowers may be shocked to find that their monthly repayments could increase by so much if they settle for their provider's SVR," said Darren Cook
, finance expert at Moneyfacts.co.uk. "This is likely to motivate many customers to remortgage. Faced with such a big jump in monthly repayments, it clearly pays for borrowers to shop around and remortgage once their initial rate has come to an end. However, remortgage customers must consider all aspects of the mortgage to ensure they are getting the best deal for them."