Fixed Rate  

Gap between two-year fix and SVR 'highest in years'

Gap between two-year fix and SVR 'highest in years'

Borrowers are likely to see the interest rate on their mortgage go up by 1.5 per cent when their two-year fixed-rate matures, research by Moneyfacts has shown.

The difference between the average standard variable rate and the average two-year fixed rate is at its highest level for more than eight years.

This means a borrower with a £200,000 mortgage over 25 years on a repayment-only basis could find their payments going up by £163.81 a month.

This trend has led to borrowers with cheap deals which are maturing to be more likely to remortgage then their counterparts two years ago.

Charlotte Nelson, finance expert at Moneyfacts, said the mortgage market experienced an aggressive drop in rates two years ago, which saw the average fall from 3.41 per cent in October 2014 to 3.06 per cent in March 2015.

The current average SVR is 4.56 per cent, Moneyfacts has said.

Two years ago, when these people were taking out their mortgages, the difference between the average two-year fixed rate and the average SVR was 0.96 per cent.

Ms Nelson said: “Despite the base rate standing at a record low, borrowers will be shocked to find that their monthly repayments could increase by £163.81 a month or £1,965.72 a year on average if they settle for the SVR.

“This could provide a strong motivation to remortgage, with the remortgage market having already seen substantial activity in recent months as customers have continued to take advantage of the record low rates.

“Especially as the average two-year fixed rate stands at 2.33 per cent today, sitting on a lender’s SVR should be avoided if possible.”

She added that the increased motivation to switch could put lenders in a bind, since they will face heavy competition but may struggle to lower rates further.

This will lead them to compete on other elements of the mortgage, she said.

Mike Richards, director of London-based Mortgage Concepts Associates, said: “The rates on two-year fixes are probably the lowest they have been for a long time but SVRs are staying very level.

“People are still doing two-year fixes when I personally think it is the best time ever to take a five-year fix if you’re staying in the property longer-term.”

damian.fantato@ft.com