Home owners could be more motivated to remortgage later this year, analysis suggests
The motivation for existing home borrowers to remortgage is expected to increase and reach a peak in October of this year, according to a new analysis.
The latest research from Moneyfacts suggests that those on a two year fixed rate at an average of 2.3% taken out in May 2017 could see their interest rate more than double when moved onto the average standard variable rate (SVR) of 4.89%.
Further research shows that the average two year fixed rate reached a record low of 2.2% in October 2017 and if the average SVR remains constant at 4.89%, the projected average difference in the revert rate will increase from 2.59% to 2.69% by October 2019, increasing the motivation to remortgage even further.
‘Two years ago, the average two year fixed mortgage rate fell notably, reducing from 2.31% in January 2017 to a record low of 2.20% in October the same year. The following month, the Bank of England increased base rate from 0.25% to 0.5% and the average two year fixed rate increased to 2.35% by December 2017. In comparison, the average two year fixed rate currently stands at 2.47%,’ said Darren Cook, Finance Expert at Moneyfacts.
‘Over the next six months, it is likely that many mortgage borrowers who secured a two year mortgage deal two years ago may see their record low interest rate expiring and will have no intention to revert to a rate that could see their interest rate double overnight,’ he pointed out.
He explained that, for instance, a borrower on a repayment mortgage of £250,000 who locked into the average two year fixed rate of 2.2% in October 2017, if then transferred onto the predicted average lender’s SVR of 4.89% in October 2019 will see their mortgage repayments increase by £4,336.20 per year.
‘This significant increase in motivation for borrowers to switch mortgage deals, and the subsequent potential increase in remortgage business as a result, may push some mortgage lenders to marginally cut rates over the next few months to maintain a competitive edge,’ said Cook.
Indeed, the average two year fixed rate has already fallen this month, from 2.49% in March 2019 to 2.47% today. However, as previous Moneyfacts.co.uk research has shown, this fall could be attributed to rate cuts at higher risk loan to value (LTV) tiers to attract first time buyer business.
‘It will therefore be interesting to see if the average rate falls further still as providers potentially to target remortgage customers and therefore lower LTV tiers as we approach October,’ Cook added.