Coming to the end of a fixed rate mortgage deal requires careful consideration of what to do next. Do you take the easy route and revert to your lender's standard variable rate (SVR), or do you put a bit more time in to compare mortgage rates and remortgage to the best possible deal? Really, it should always be the latter, especially as our research shows that doing so could save you over £2,000 each year.
The data, taken from the latest Moneyfacts UK Mortgage Trends Treasury Report, shows that motivation to remortgage is at its highest level since October 2008, as borrowers who are coming off a two-year fixed rate deal this month could save approximately the cost of a two-year variable rate mortgage if they remortgaged instead of reverting – it's a no-brainer!
This is because the average two-year mortgage rate of June 2015 stood at 2.87%, while the current average SVR is 4.59%. This means those now facing the option of reverting could see a rate hike of 1.72% if they did so, a huge jump by anyone's reckoning, but even more so when you consider that the average two-year tracker mortgage rate currently stands at 1.88%. So, if you choose to revert to an SVR, you could add the cost of almost an entire mortgage to your repayments.
|Avg 2-Year Fixed||Avg SVR at end of 2 years||Movement in Rate|
"The motivation to remortgage has been edging up in recent months," said Charlotte Nelson, finance expert at Moneyfacts, "[and now] those coming off a cheap two-year fixed rate could potentially see a rate rise of 1.72% on average. This is a marked increase, particularly when compared to the average two-year variable rate tracker, which stands at 1.88%."
If reverting could add a huge amount to your repayments, remortgaging could save you a small fortune, with our figures showing that you could be better off by thousands of pounds if you opted for a new two-year mortgage instead.
Charlotte explains: "With the average two-year fixed rate standing at 2.30%, borrowers will find they could be £184 a month or £2,208 a year better off if they switch from the average SVR to the average two-year fixed rate mortgage [based on a £150,000 mortgage over 25 years on a repayment-only basis]. This huge savings potential is what is driving many to remortgage away from their SVR and on to a new deal."
It's little wonder, then, that so many are choosing to remortgage. Indeed, figures from LMS show that the number of remortgage transactions continues to rise: the total stood at 38,475 in April, an increase of 8% from March (35,500), as well as marking a rise of 10% year-on-year (up from 34,700 in April 2016). Additional figures from the Bank of England show that, although mortgage approvals overall dipped in April, remortgaging still accounts for a lot of those approvals, and there's no sign of this sector losing momentum.
However, issues could arise when it simply isn't possible to remortgage, as Charlotte explains: "Switching to a better deal is a great idea in principle, but some borrowers may be unable to move – perhaps because their circumstances change and they don't pass affordability checks for a new mortgage deal – and are finding themselves prisoners to high SVRs instead. As house prices start to fall, the main concern for many of these borrowers is negative equity.
"Competition in the mortgage market has caused a lot of borrowers sitting on their SVR to rethink their options. However, with the average two-year fixed rate remaining the same this month, there are signs that the mortgage market may be starting to stagnate, as competition in this key area wanes slightly.
"As rate reductions start to slow, now might be the time to act for many borrowers looking to switch to a cheaper deal, since any more major cuts are starting to become unlikely, and so the only way from here is up."
Compare the best remortgage deals to see if it's time to switch
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