Mortgage rates: Borrowers hit by Covid urged to take action to avoid paying thousands more | Personal Finance | Finance
The research from Legal & General indicates more than one in three people negatively impacted financially by the pandemic are planning to revert to their lender’s SVR (Standard Variable Rate) rather than seek a new mortgage deal. Furthermore, research illustrates how this may cost thousands of pounds in higher monthly repayments.
Following last year’s cuts to the Bank of England Base Rate, the average Standard Variable Rate sits at a low of 4.41 percent, money comparison website Moneyfacts said last month.
It means those who are coming to the end of a two-year fixed rate deal taken in March 2019, when the average rate was 2.49 percent, could face a rate hike of nearly two percent by reverting to their SVR.
This could mean they potentially end up saving more than £3,500, by securing a new two-year fixed rate deal now.
Homeowners coming off a five-year fixed rate deal from 2016 and who are looking for a similar arrangement now may find the last equivalent average rate is a significant 0.49 percent lower than five years ago.
Compared to rolling onto an SVR, they could potentially reduce their outgoings on mortgage payments by more than £130 per month.
These calculations are based on an outstanding mortgage balance of £150,000, over a 25-year term and overall average two- and five-year fixed rates for March 2021 (2.57 percent and 2.75 percent), compared to average SVR of 4.41 percent.
Over the 60 months of a typical five-year fixed deal, that could equate to a total saving of more than £8,000, Moneyfacts said.
The money comparison website said people who are concerned about their initial outlay on costs associated with a new mortgage may want to note that while the average fee on a fixed rate mortgage is £27 higher now than this time last year, 34 percent of the fixed rate deals currently on offer contain no product fee.
Furthermore, the proportion of the market where incentives are available remains relatively stable year-on-year.
Eleanor Williams, Finance Expert at Moneyfacts.co.uk, commented on the research, warning it may be some could make some much-needed savings.
“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,” she said.
“One way to save some cash could be to remortgage, especially if a borrower is on an SVR.
“At 2.57 percent, the overall average two-year fixed rate for all LTVs is 0.08 percent higher than the equivalent average rate of 2.49 percent 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 two percent 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 two percent.
“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 £5billion 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 remortgaging 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 six percent year-on-year, there are many products available without a fee, and at 2.75 percent, the average rate for fee-free fixed rates is lower than the average for those which do charge a fee (2.92 percent).
“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.”