Mortgage warning for homeowners

Homeowners whose two-year fixed rate mortgage deals are about to end have been warned they could see a bill shock if they fail to act.

Fixed Rate Mortgage

In September 2017, the average two-year fixed rate mortgage rate hit its lowest ever level at 2.17 per cent, according to Moneyfacts.

Borrowers can still swap to deals almost as cheap as that now, but those who do not remortgage and instead fall onto their lender’s default standard variable rate risk monthly payments rising substantially.

Today’s average standard variable rate sits at 4.89 per cent, and a shift to that from 2.17 per cent would see the average mortgage’s monthly mortgage payments jump by 26 per cent – adding £175 – as monthly payments rose from £680 to £855, according to Compare the Market.

The benefits of searching out a new mortgage deal promptly are shown by the fact that at today’s average two-year Fixed Rate Mortgage rate of 2.44 per cent, a homeowner with a £130,000 mortgage with 20 years left would only see bills rise £11 a month to £691 if they moved to that from 2017’s average rate of 2.17 per cent.

Moneyfacts finance expert Darren Cook said: ‘Borrowers who may be arriving at the end of their current two-year deal will probably have a high motivation to remortgage.

‘But they may need to look carefully to find a rate similar to the one they may have negotiated two years ago.’

Homeowners were warned not to be lulled into a false sense of security by the low interest rate environment, as lender’s default rates are considerably higher than new deals.

Compare the Market’s Mark Gordon said: ‘Rolling onto a standard variable rate mortgage can cost you thousands of pounds.

‘We may be in a “lower for longer” rate environment now, but that doesn’t mean interest rates will remain at rock bottom forever.

‘For those people on a standard variable rate mortgage, the additional costs should be a wake-up call.

‘Not only could your mortgage get more expensive if the base rate rises, but SVR mortgages tend to be much more expensive than fixed rate deals available.’

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