Mortgage lenders have been reducing their fixed-rate deals over the last couple of months leaving the average two and five-year fixed rates significantly lower than the typical standard variable rate (SVR).
New data from Moneyfacts.co.uk has revealed the average SVR – which is the default rate your lender will charge when your deal expires and you don’t switch to a new deal – is currently at a record high of 8.09%.
Meanwhile both the average two- and five-year fixed rates fell between the beginning of August and the start of September, to 6.70% and 6.19% respectively. The average two-year fixed rate stands at 0.51% higher than the average five-year equivalent, according to Moneyfacts.
As such, it means anyone reaching the end of their deal, who was considering doing nothing and waiting until interest rates fall, will risk paying high rates whilst they sit it out.
Rachel Springall, finance expert at Moneyfacts, said: “As average fixed rates start to fall and the average SVR rises, the incentive to lock into a fixed rate deal increases.
“The average two-year fixed rate in September 2021 stood at 2.38% and, based on a £200,000 mortgage over 25 years, monthly mortgage payments at this rate would have been £885.
“The equivalent payment at today’s average SVR of 8.09% would be £1,556, a near £700 monthly increase.
“As average fixed rates remain at levels not seen since the years following the 2007 financial crisis, borrowers may wish to consider other options, such as tracker mortgages, so seeking advice to navigate deals is essential.”
The average two-year tracker mortgage rate rose month-on-month to stand at 6.25%, Moneyfacts data showed.
Growing choice for mortgage customers
Another encouraging sign for borrowers is that mortgage choice has improved considerably with 5,338 options now on the market. This is the highest count since February 2022 and more than double the availability seen in October 2022.
Springall said this signalled more stability in choice across the market.
She added: “It will be interesting to see how the mortgage market improves in the weeks to come, particularly if SWAP rates fall, as lenders may then cut their fixed rate deals as a result.
“As we have seen before, a volatile interest rate market can have a significant impact on lenders’ pricing strategies.
“Borrowers concerned about the affordability of their mortgage will be keen to see stability in product choice and for fixed rates to fall further before they refinance. There are some attractive deals out there with incentive packages to choose from, which may be a more cost-effective choice than a low-rate fixed deal.”
