Phil Spencer discusses cities to pay off your mortgage quickest
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Switching from a standard variable rate to a fixed rate mortgage deal could see a person reduce monthly repayments by nearly £150 per month. The average SVR is 3.62 percent, according to the latest Bank of England figures.
Meanwhile, the average two-year fixed rate mortgage is 1.62 percent.
New analysis by comparethemarket.com on Bank of England data has found homeowners on a standard variable rate could be paying more than £1,750 a year more than they need to.
This is in comparison to those on the average two-year fixed rate mortgage deal.
As such, borrowers could save thousands of pounds each year by remortgaging onto a cheaper fixed rate deal.
This is instead of being automatically moved onto a lender’s SVR once their fixed term deal ends.
The average mortgage debt in the UK is just over £140,000.
According to comparethemarket.com’s analysis, homeowners coming to the end of a two-year fixed mortgage will pay £146 more each month when rolled onto a lender’s SVR – jumping from an average £492 to £638.
For borrowers with a large amount of equity, such as 60 percent loan-to-value (LTV) and below, rates can be even lower.
The price comparison website said this could potentially even start from 1.06 percent.
Based on the average mortgage debt, these homeowners could save more than £2,200 each year by switching away from their lender’s SVR.
Mark Gordon, director of money at comparethemarket.com, said: “If you are on a lender’s standard variable rate, you are likely to be overpaying on your mortgage.
“It’s been a tough year for many household finances and many have had to turn to payment holidays on household bills as the pandemic has hit budgets.
“Borrowers who remortgage onto a fixed-rate mortgage product, have at least the certainty of fixed monthly repayments, which can provide peace of mind and could make it easier to manage monthly outgoings in a challenging economic environment.
“The remortgage market remains competitive for existing homeowners, with plenty of attractively priced deals to choose from.
“It pays to shop around online.”
Research by mortgage broker Habito put a spotlight on how many people are on an SVR.
A survey of 2,000 homeowners by Habito found more than a quarter (27 percent) of respondents said they were on their lender’s highest possible rate of interest (SVR) while nearly one in five (18 percent) didn’t know if they were or not.
Of those who knew they were on an SVR but hadn’t switched, one in ten said it was because they didn’t realise they could get a cheaper deal.
Daniel Hegarty, founder and CEO of Habito, commented: “So many homeowners admit they’re in the dark when it comes to remortgaging.
“But with the UK likely facing another year of uncertainty, it is more important than ever to ensure you aren’t paying over the odds much on your mortgage.
“We’re on a mission to stamp out mortgage jargon and shed light on meaningful ways people can save money each month.
“If you’re on a two-year fixed rate, then do make sure you have a regular cycle of refinancing.
“We see remortgaging a bit like switching utility or broadband providers, but with bigger returns.”
He went on to point out there are a number of choices homeowners may be able to consider: “There are lots of options for remortgaging out there – whether you’ve been furloughed, have experienced a reduction in income or you’ve taken a mortgage payment holiday, your lender should be open to you doing a product transfer with them.
“To get a whole-of-market view of your options, speak to a free mortgage broker who can advise you on the best course of action, including sorting a product transfer for you.
“And remember, don’t leave things until the last minute, remortgaging can take a few weeks so it’s best to start thinking about switching three to four months before the end of your initial period.”
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