Borrowers who opted for a two-year fixed rate mortgage at the start of 2017 are likely to revert to a SVR which is more than double their initial fixed rate, according to Moneyfacts UK Mortgage Trends Treasury report.
In January 2017 the average two-year fixed rate deal was 2.31%. The average SVR has now risen to 4.90% in January 2019, an increase of 2.59% and the biggest gap in a decade.
Moneyfacts spokesman Darren Cook, said that this increased motivation to switch deals is driving some to switch providers, which could see some lenders lose a substantial proportion of their mortgage book from remortgagors looking elsewhere.
He said that two years ago the mortgage market was experiencing an aggressive drop in rates, which saw the average two-year fixed mortgage rate fall from 2.56% in January 2016 to 2.31% in January 2017.
Steadily increasing gap
He added: “Borrowers may be shocked to find that their monthly repayments could increase by £279.34 a month or £3,352.08 a year on average if they settle for their provider’s SVR.
“This is likely to motivate many customers to remortgage, despite the current increase in the average two-year fixed rate rising to 2.53%, as this is still 2.37% below the current average SVR. It could decrease the monthly repayments of those sitting on their lender’s SVR by £257.30 or £3,087.60 on average.
“Faced with such a big jump in monthly repayments, it clearly pays for borrowers to shop around and remortgage once their initial rate has come to an end. However, remortgage customers must consider all aspects of the mortgage to ensure they are getting the best deal for them.”
The gap between the average maturing rate and average SVR has been steadily growing since January 2018, when it stood at 2.19%.
With intense competition in the mortgage market large numbers of homeowners remortaged in 2018.
However, the latest figures released by UK Finance earlier this month, revealed a drop in remortgage approvals by high street banks of 20.3% in November 2018 from the same month in 2017.
Also, Mortgage Solutions has seen confidential figures from the trade body which predict a continued growth this year followed by a near 25% fall in 2020.