Homeowners who took out two-year fixed rate mortgages in 2023 could benefit in a cut to their repayments as they come off deals this year.
As many as 937,433 took out mortgages in 2023 and, at the time, the typical interest rate for a two-year fix was 5.06%, according to analysis by Compare the Market.
Since then mortgage rates have fallen and it means those borrowers exiting their two-year fixes and remortgaging to a new deal may find interest rates of around 4.6% for the same length deal and 4.33% for a five-year fixed rate.
These figures have emerged after the comparison site submitted a Freedom of Information request to the Financial Conduct Authority and also analysed Bank of England data.
It was published before the Bank of England cut interest rates on Thursday to 4.25% – so borrowers could potentially benefit from lower average mortgage rates than stated above.
However, the potential drop in repayments underlines the value of switching to a new deal when your current rate ends rather than reverting to their lender’s standard variable rate (SVR).
Indeed, SVRs are usually more expensive than the deals on offer at the same lender and if you take into account deals available at other providers too, you could find a more competitive rate.
According to Compare the Market’s analysis, a borrower with a 30-year mortgage term and an average mortgage debt of £178,523, who moved to a new fixed-rate deal, could see their annual payments decline by £597 on a new two-year fix.
This could fall by £940 on a new five-year fix, according to Compare the Market’s calculations.
By doing nothing and defaulting to their lender’s standard variable rate (SVR) the annual payments could increase by £2,861, the comparison site said.
Guy Anker, mortgage expert at Compare the Market, said: “Our research shows average mortgage rates are lower than they were in 2023, so anyone coming off a two-year fixed-rate deal may find their monthly payment could fall if they shop around for a new deal.
If your mortgage deal is set to end this year, it’s wise to consider your options now as you can sometimes lock into a new deal up to six months before it is due to start.
“While there will be exceptions, it is often cheaper to get a new deal than move onto your lender’s standard variable rate (which most fixes and tracers revert to).”
Check your credit score first
He suggests checking to make sure your credit score is up to scratch before applying for a new deal.
“A potential new lender will check how you’ve been handling debt and managing your finances over the past few years,” he said.
“This includes any credit card applications, missed payments or even late payments of utility bills.
“It’s worth checking your credit file before making a new mortgage application in case there are any errors or past credit issues you don’t know about. And in the meantime, keep up with all payments.”
