According to Moneyfacts, borrowers who opted for a cheap two-year fixed rate mortgage two years ago are more likely to remortgage from their Standard Variable Rate (SVR) to a new deal than those whose fixed deals ended in October 2014.
This means lenders need to compete effectively to avoid losing substantial portions of their mortgage book.
Charlotte Nelson, finance expert at Moneyfacts, said those borrowing two years ago benefited from an aggressive drop in rates. The average two-year fix in March 2015 was 3.06%, down from 3.41% in October 2015.
“Borrowers who took advantage of lenders fighting to be the lowest in the market at the time could now find a difference of 1.50% between their previous fixed rate and the current average SVR (4.56%),” she said.
Moneyfacts said monthly repayments could increase by £163.81 a month or £1,965.72 a year on average if borrowers settle for the SVR (based on a £200,000 mortgage over 25 years on a repayment-only basis).
This could provide a strong motivation to remortgage. The remortgage market has already seen substantial activity in recent months as customers have continued to take advantage of the record low rates. The average two-year fixed rate stands at 2.33% today.
“This increased motivation to switch deals will also mean providers will need to yet again compete heavily or face losing a substantial proportion of their mortgage book. However, it may be difficult for lenders to find room to lower rates even further, causing them to look at other parts of the mortgage package to try and attract customers,” said Nelson.
“Faced with such a big jump in monthly repayments, it clearly pays for borrowers to shop around and remortgage.”
The figures are from the Moneyfacts UK Mortgage Trends Treasury Report, to be published later this month.