- Average two-year fixed mortgage rate is down more than two percentage points in the past year
- Anyone with less than 10 per cent equity in their home best to stick with SVR
The average two-year fixed rate mortgage has dropped 2.27 percentage points in the past year from 5.98 per cent to 3.71 per cent, while the typical three year rate deal has fallen 1.66 points from 5.83 per cent in April 2008 to just 4.17 per cent.
Some borrowers part way through a fixed rate term may even consider paying the Early Redemption Charge (ERC) and remortgaging to a cheaper deal while interest rates are historically low, and before they start rising again. However this will not be the best option for everyone.
Louise Cuming, head of mortgages at moneysupermarket.com, said; "The leading fixed rates have dropped significantly over recent months following the reductions in the Bank of England base rate. As a result some people could make significant savings by remortgaging now - even if they'll have an ERC to pay. However, it will all depend on the maths.
"Looking at the average three-year fixed rate deal 12 months ago, a borrower would be paying 5.83 per cent with no respite on the horizon until 2011. However, if they qualify for HSBC's market-leading two-year fix at 2.89 per cent (60 per cent LTV), they would save £1,534.51 over the next two years by remortgaging now - and that's after the ERC and all other charges are factored in.
Figures based on a £150,000 mortgage taken over 25 years
|
Lender |
Pay Rate |
Arr/Bkg Fee |
Early Repayment Charge |
Monthly Repayment |
Cost Over 12 Months |
ERC |
Upfront Fee |
Total Cost over 2 Years |
|
Average 3 Year Fixed Rate April 08 |
5.83% |
n/a |
3% |
£962.09 |
£11,545.08 |
n/a |
n/a |
£23,090.16 |
|
HSBC 2 Year Fixed |
2.89% |
£1,499 |
n/a |
£654.50 |
£7,854.00 |
£4,153.65 |
£1,694.00 |
£21,555.65 |
|
Difference |
|
|
|
£307.59 |
|
|
|
£1,534.51 |
|
Sourced by www.moneysupermarket.com 07.04.2009 |
Louise added, "Sadly, not everyone will benefit from the great fixed rate deals currently on the market. For some, remortgaging won't be worthwhile because of the charges involved and others won't qualify for the leading rates because they don't have enough equity in their home. There is a huge variation in rates and the best fixed deals are only available to those with large deposits.
"For example if we look at some of the lowest rates in each category, someone looking to borrow 90 per cent of the property's value could get a fixed rate deal with the Clydesdale Bank at 5.99 per cent. However, if they only needed a 75 per cent loan they would qualify for Alliance & Leicester's two-year fix at 3.49 per cent, or NatWest's at 3.79 per cent. And the lucky ones, only needing to borrow 60 per cent, could lock in to HSBC's fixed rate at 2.89 per cent.
"Borrowers with 10 per cent or less equity in their home, who are coming to the end of a fixed rate will probably be better off doing nothing and staying put for the time being. Many standard variable rates are lower than the leading 90 per cent mortgage deals at the moment. They should use this period of low SVR to make overpayments on their mortgage. They will then increase the amount of equity they have in their home which will increase the likelihood of them qualifying for a more competitive mortgage deal..
"There is also still a significant average difference of over half a per cent between fixed and tracker rates. The average two-year fixed rate deal is 3.71 per cent, whilst the average tracker is 3.16 per cent. Some borrowers may prefer to take the gamble of opting for a lower, variable rate, now. For others, the premium of a fixed rate will be worth paying. Fixed rates offer valuable peace of mind which is essential for some - particularly those on a tight budget."
- ENDS -
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