MONEYFACTS ARCHIVE. This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Published: 30/04/2019

A remortgaging boost could be on the cards as borrowers face increasingly high revert rates, with the latest research from Moneyfacts.co.uk revealing that motivation to do so is expected to reach a peak in October this year.

Already, motivation is likely to be high – the data shows that those who locked into a two-year fixed rate mortgage two years ago, when the average rate was 2.30%, could see their interest rate more than double (+2.59%) if they revert to the average standard variable rate (SVR) of 4.89%, which could add a significant amount to monthly repayments.

If the pattern continues, the jump could be even greater. Our data shows that the average two-year fixed mortgage rate fell to a record low of 2.20% in October 2017, which means that, if the average SVR remains at 4.89% in the coming months, those coming to the end of their fixed term in October could face a rate hike of 2.69%.


Average two-year fixed mortgage rate


Predicted average SVR at end of two-year deal

(assuming that the average SVR remains constant and no Bank base rate changes take place)


Predicted increase in rate movement


May-17


2.30%


May-19


4.89%


2.59%


Jun-17


2.30%


Jun-19


4.89%


2.59%


Jul-17


2.26%


Jul-19


4.89%


2.63%


Aug-17


2.23%


Aug-19


4.89%


2.66%


Sep-17


2.22%


Sep-19


4.89%


2.67%


Oct-17


2.20%


Oct-19


4.89%


2.69%


Nov-17


2.33%


Nov-19


4.89%


2.56%


Dec-17


2.35%


Dec-19


4.89%


2.54%

Source: Moneyfacts.co.uk

"Over the next six months, it is likely that many mortgage borrowers who secured a two-year mortgage deal two years ago may see their record low interest rate expiring and will have no intention to revert to a rate that could see their interest rate double overnight," said Darren Cook, finance expert at Moneyfacts.co.uk.

Looking at the potential repayment increase, it isn't hard to see why: calculations show that a borrower on a repayment mortgage of £250,000 who locked into the average two-year fixed rate of 2.20% in October 2017, but then transferred onto the predicted average lender's SVR of 4.89% in October 2019, could see their mortgage repayments increase by £4,336.20 per year (rate increase of 2.69%).

If they remortgaged instead, their repayments wouldn't rise by anywhere near as much. The current average two-year fixed mortgage rate may be higher than it was two years ago – it currently stands at 2.47% – but it's still far less than the average SVR. This is just the average, too; it's worth remembering that there are still plenty of mortgage deals available with rates below 2%, as our mortgage Best Buys highlight. Not only that, but there's the chance that the potential remortgage boost could cause mortgage rates to edge down in the coming months, as Darren explains:

"The significant increase in motivation for borrowers to switch mortgage deals, and the subsequent potential increase in remortgage business as a result, may push some mortgage lenders to marginally cut rates over the next few months to maintain a competitive edge.

"Indeed, the average two-year fixed rate has already fallen this month, from 2.49% in March 2019 to 2.47% today. However, as previous Moneyfacts.co.uk research has shown, this fall could be attributed to rate cuts at higher loan-to-value (LTV) tiers to attract first-time buyer business. It will therefore be interesting to see if the average rate falls further still as providers potentially look to target remortgage customers – and therefore lower LTV tiers – as we approach October."

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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