Recent research from Legal & General indicates that over one in three of those negatively impacted financially by the pandemic are planning to revert to their lender’s standard variable rate (SVR) rather than seek a new mortgage deal.
Moneyfacts.co.uk illustrates how this may cost thousands of pounds in higher monthly repayments to those who can potentially afford it the least.
With today’s average SVR sitting at a low of 4.41% following last year’s cuts to base rate, those coming to the end of a 2-year fixed rate deal taken in March 2019 when the average rate was 2.49%, could face a rate hike of nearly 2% if they revert to their SVR.
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Moneyfacts suggests that these customers could potentially save over £3,500 if they were to secure a new 2-year fixed rate deal.
Those coming off a 5-year fixed rate deal from 2016 who are looking for a similar arrangement, the equivalent average rate is 0.49% lower than when they last secured a deal which, compared to rolling onto an SVR, could reduce their outgoings on mortgage payments by over £130 per month according to Moneyfacts.
Over the 60 months of a typical 5-year fixed deal, that could equate to a total of over £8,000 saved.
Moneyfacts also say that while the average fee charged on a fixed rate mortgage is £27 higher now than this time last year, 34% of the fixed rate deals currently on offer contain no product fee, and the proportion of the market where incentives are available remains relatively stable year-on-year.
Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “Households may have found themselves impacted by the coronavirus pandemic in different ways; some have been fortunate to maintain a stable income and have been able to save money, but many have had their household income adversely impacted.
“One way to save some cash could be to remortgage, especially if a borrower is on an SVR.
“At 2.57%, the overall average two-year fixed rate for all LTVs is 0.08% higher than the equivalent average rate of 2.49% for those who secured a two-year fixed rate in March 2019.
“However, rolling over onto an SVR could cost borrowers thousands of pounds more in monthly repayments.
“In fact, the difference in rate is near 2% and depending on how much equity someone has in their home, they may be able to get a two-year fixed rate deal lower than 2%.
“Those who fix now could also protect themselves from future interest rate rises and ensure a stable monthly mortgage repayment they can budget to.
“The Equity Release Council has stated that homeowners have overpaid more than £5bn of mortgage debt in the final quarter of last year, so those who secure a remortgage could then consider using some of the cash they have saved from their monthly SVR payments to reduce their outstanding debt and thus could save even more in interest overall.
“Undoubtedly, although there may be those currently struggling financially, it would be unwise for borrowers to assume that they would not be eligible for a new mortgage, even if their existing lender is unable to offer a new deal.
“Seeking independent advice from a broker who is up to date on the ever-changing mortgage sector could unveil options which may save them significant sums.
“There are “furlough friendly” lenders who may be able to assist, lenders who may have different lending criteria to their current provider, and some brokers may have access to deals which borrowers cannot obtain directly.
“Those who feel put off remortaging due to concerns around finding funds to meet associated costs should note that while the percentage of the market offering fee free deals has reduced by 6% year-on-year, there are many products available without a fee, and at 2.75%, the average rate for fee-free fixed rates is lower than the average for those which do charge a fee (2.92%).
“Equally, there are still many options which could help to reduce upfront costs, with the proportion of the market offering various incentive packages remaining fairly stable year-on-year.
The right mortgage is about more than just the initial rate offered, and advice could be invaluable in assessing what may be the best route forwards for an individual’s circumstances.”