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Mortgage deals have been drastically altered by coronavirus in recent months and new research from comparethemarket.com has examined how the market is currently doing. They examined the latest Bank of England data and found that the average two-year fixed mortgage rate is now at 1.40 percent and a five-year fixed mortgage rate at 1.69 percent – a difference of 0.28 percent.
In contrast to this, the average standard variable rate (SVR) is 3.66 percent.
They note that while the lowest point recorded in the last ten years was 0.25 percent in Q4 2019, the difference has not been seen lower than this since 2008.
Comparethemarket.com explains that as the length of the “fix” lengthens, the interest rate will usually creep higher.
Despite this, it is still usually far less than a lender’s (SVR) and the extra cost difference between a two, five, or even ten-year fix, could be suitable for those who want certainty of monthly payments and to lock in lower interest rates for a longer period of time.
They calculated that based on the average mortgage debt of £135,000 and a 75 percent loan-to-value, homeowners on a SVR could be paying nearly £2,000 a year more in comparison to those on the average two-year fixed mortgage deal.
This is almost £1,700 extra compared to a five-year fix and over £1,000 more compared to the average 10-year fix rate.
These calculations could impact a lot of mortgage holders in the UK as there are approximately 800,000 borrowers who have been on a SVR for more than six months.
Mark Gordon, the director of money at comparethemarket.com, commented on these findings: “The longer you fix, the longer you are locked into a lower monthly payment.
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“Considering the current economic environment and historically low-interest rates, knowing what your monthly interest payments are over the long term can provide greater certainty and peace of mind, making it easier to manage everyday finances.
“Staying on a lender’s standard variable rate mortgage can cost thousands of pounds more than is necessary.
“By re-mortgaging, this money can be used elsewhere or put into a rainy-day savings fund. “While there are fewer mortgage products available on market than usual, there are still plenty of good deals to be found by shopping around online and comparing deals.”
It should be noted that the comparisons made by comparethemarket.com only factor in rates and do not take into account additional fees and other lender costs.
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The Money Advice Service detail that it is imperative that mortgage holders should check out these costs before making any decisions.
As they explain: “Some lenders might offer fee-free deals to tempt you, but if they don’t you’ll have legal, valuation and administration costs to pay.
“What might look like a money-saving deal could end up losing your money if you don’t do your sums first.”
The Money Advice Service recommends a number of comparison websites for comparing mortgages.
However, they note that these websites will not give everyone the same results and so they advise people to use more than one site before making a decision.
They also urge people to do so some research into the type of product and features they need before making a purchase or changing supplier.
Additionally, taking advice from a qualified expert can provide additional protection because if a chosen mortgage deal ends up being unsuitable, the holder will be able to complain to the Financial Ombudsman Service and seek redress.
Additional impartial guidance can be sought from the likes of Citizens Advice and the Money and Pensions Service.
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