Homeowners could save around £330 per month by switching from a standard variable rate (SVR) to a fixed rate mortgage.
The average SVR stands at 8.16% compared to the average five-year fixed rate of 5.38%, according to analysis from Compare the Market, which looked at Moneyfacts figures along with Nationwide’s mortgage payment calculator.
By moving to a five-year fixed rate, this could save mortgage holders £330 per month or around £3,960 per year.
When compared to an average two-year fixed rate of 5.77%, homeowners could save £286 per month or £3,432 annually on their mortgage repayments if they moved from an SVR.
This is based on a mortgage debt of £178,523 per household and a 30-year mortgage term.
Compare the Market said that following the base rate cut by the Bank of England in August, and the expectation of further reductions, homeowners should be “able to save more by shopping around for mortgage deals, rather than opting for an SVR deal when their initial mortgage term comes to an end”.
The report stated that the Bank of England’s Financial Stability Report shows over three million people were paying mortgage rates of less than 3%. However, most of these will expire between now and 2025.
Potential savings of thousands annually
UK Finance figures earlier this week showed that 700,000 fixed rate mortgages are set to mature during the second half of this year and a further 1.8 million in 2025.
The firm added that as these homeowners’ fixed rate deals mature, their mortgage repayments could rise by around £180 each month, equal to 28%.
Tom Lyon, money expert at Compare the Market, said: “Households will welcome falling mortgage rates after the recent Bank of England decision. However, fixed rates remain high by historical standards, and borrowers who locked in low rates years ago could face substantially higher mortgage costs if their previous deal expires soon.
“For any homeowners coming off a mortgage deal, it’s worthwhile shopping around online and seeing what other fixed rate deals are available, as this could potentially save thousands in annual repayments compared to going onto an SVR. It’s a good idea also for homeowners to keep a close eye on how the market continues to evolve so as to be as informed and confident as possible in their financial decisions.”
This article was first published on YourMoney.com‘s sister site, Mortgage Solutions. Read: Homeowners could save £330 a month switching from SVR to fixed rates
