MortgagesSep 13 2016

Momentum to switch mortgage in six month lull

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Momentum to switch mortgage in six month lull

Borrowers coming to the end of a two-year fixed rate mortgage will have less incentive to switch to a new deal when their standard variable rate kick in, as the difference between the two rates is the lowest it has been for six months.

According to Charlotte Nelson, finance expert at Moneyfacts, the margin between the average mortgage rate of two years ago (3.54 per cent) and the current standard variable rate (4.71 per cent) has reduced considerably, with the current variance of 1.17 per cent indicating that borrowers may have far less motivation to remortgage now than they would have in recent months.

Ms Nelson pointed to the significant effect the cut to base rate has had on the mortgage market, as in just four months this margin has shrunk by 0.17 per cent.

Borrowers who would have given a remortgage some serious thought, may now consider simply reverting to the provider’s lower SVR instead, she added.

Ms Nelson forecast the change would hit the remortgage market, which may start to show a further slowdown in activity, against a backdrop of economic uncertainties keeping homeowners wary of making any big decisions.

Ms Nelson said: “An increase in borrowers tempted to remain on their SVR could potentially unnerve providers.

“With rates at all-time lows, it may be difficult for some providers to find room to lower rates even further and try to retain their mortgage book by encouraging customers to commit to a remortgage with a longer initial rate period.

“However, this may cause providers to look at diversifying into different areas of the mortgage market instead, such as higher loan-to-values.

“With fixed rates now at record lows, borrowers could find they are potentially missing out on savings of hundreds of pounds. It is always worth taking a look to see if a better deal could be achieved.”