Homeowners on a standard variable rate (SVR) could save over £5,000 per year by switching to a fixed rate, a mortgage broker reveals.
Around 693,000 borrowers could benefit from the change of rate due to the difference between the average rates of the two options among major lenders, according to Mojo Mortgages.
As it stands, the average offer for an SVR is 8.24% and the average two-year fix is 4.68% among the six biggest lenders in the UK: Lloyds, HSBC, NatWest, Nationwide, Santander and Barclays.
The average payment per month is £1,581 for an SVR at 8.24%, while among the ‘big six’ lenders, a 4.48% average rate for a two-year fix comes to £1,136 – a £445 difference.
This is based on a 75% loan to value (LTV) and a 25-year loan term.
Mortgage rates are expected to fluctuate since the Monetary Policy Committee (MPC) voted to reduce the Bank of England base rate from 4.75% to 4.5% – however, widespread drops in mortgage rates are not guaranteed.
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Laura Suter, director of personal finance at AJ Bell, said: “Many homeowners will be baffled that despite multiple interest rate cuts, average mortgage rates are higher than they were a year ago. Even ahead of [the] base rate cut, which looked like a dead cert, mortgage rates headed in the opposite direction.
“Two-year fixed rates are now higher than they were in November last year and only a smidge lower than February last year – despite two base rate cuts since then – while five-year rates are higher than two years ago.”
The potential benefits of switching mortgage rates from SVR to fixed rate include predictable monthly payments, protection from interest rate increases and the chance to pay more of the principal balance of your loan as opposed to interest charges.
As well as the financial benefits, borrowers can get peace of mind on their outgoings.
The firm noted: “Switching to a fixed rate mortgage can take the pressure off having to constantly monitor interest rates, or worrying about how economic changes may affect your mortgage payments.”
This article is based on one that was first published on Mortgage Solutions‘ sister site, YourMoney.com. Read: Homeowners on standard variable rates can save over £400 a month with switch
