Recent research from Legal & General indicates that more than one in three people financially affected by the pandemic are considering reverting to their lender’s Standard Variable Rate (SVR) rather than seeking a new mortgage deal.
Moneyfacts.co.uk illustrates how it can 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% after last year’s base rate cuts, those coming to the end of a 2-year fixed-rate deal struck 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 these customers could potentially save over £ 3,500 if they were to enter into a new 2-year fixed rate deal.
Those who entered into a 5-year fixed rate deal from 2016 and are looking for a similar deal, the equivalent average rate is 0.49% lower than at the last deal entered into which, compared to the passage to an SVR, could reduce their mortgage expenses. payments over £ 130 per month according to Moneyfacts.
Over the 60 months of a typical 5-year fixed contract, this could amount to a total of over £ 8,000 saved.
Moneyfacts also states that while the average fee charged on a fixed rate mortgage is currently £ 27 higher than at this time last year, 34% of the fixed rate offers currently on offer contain no fees from product and proportion of the market where incentives are available. remains relatively stable from year to year.
Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “Households may have been affected by the coronavirus pandemic in different ways; some were fortunate enough to maintain a stable income and were able to save money, but many had a negative impact on their household income.
“One way to save money might be to remortgage, especially if a borrower is on an SVR.
“At 2.57%, the overall two-year fixed rate for all LTVs is 0.08% higher than the equivalent average rate of 2.49% for those who obtained a two-year fixed rate in March 2019.
“However, switching to an SVR could cost borrowers thousands of pounds more in monthly repayments.
“In fact, the rate difference is close to 2%, and depending on the equity in their home, a person may be able to get a two-year fixed rate of less than 2%.
“Those who repair now could also protect themselves from future interest rate hikes and ensure a stable monthly mortgage payment that they can budget for.
“The Equity Release Council said homeowners overpaid more than £ 5bn in mortgage debt in the last quarter of last year, so those who get a remortgage might then consider using part of it. of the money they saved on their monthly SVR payments to reduce their outstanding debt and could thus save even more in interest overall.
“Without question, while there may be people currently in financial difficulty, it would be unwise for borrowers to assume that they would not be eligible for a new mortgage, even if their existing lender is not able. to propose a new offer.
“Seeking independent advice from a broker who is up to date on the rapidly changing mortgage industry could reveal options that could save them significant amounts of money.
“There is “friendly” lenders who may be able to help, lenders who may have different loan criteria than their current provider, and some brokers may have access to offers that borrowers cannot obtain directly.
“Those who feel put off by remortgage due to concerns about raising funds to cover associated costs should note that while the percentage of the market offering free offers has declined 6% year over year. Other, many products are available free of charge, and at 2.75% the average rate for free plans is lower than the average for paid plans (2.92%).
“Likewise, there are still many options that could help reduce up-front costs, with the proportion of the market offering various incentive packages remaining fairly stable year over year.
There is more to the right mortgage than the initial rate offered, and advice could be invaluable in assessing what may be the best course of action for an individual’s situation.