Borrowers who opted for a two-year fixed rate at an average rate of 2.30% in May 2017 could see their interest rate more than double when moved onto the average SVR of 4.89%.
The average two-year fixed rate reached a record low of 2.20% in October 2017. The following month, the Bank of England increased the base rate (from 0.25% to 0.5%) and the average two-year fixed rate increased to 2.35% by December 2017.
The average two-year fixed rate currently stands at 2.47% – down from 2.49% last month – 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. This would give borrowers even more motivation to remortgage or switch their existing deal.
Providers to target remortgage customers?
Moneyfacts spokesperson Darren Cook said: “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.
“For instance, a borrower on a repayment mortgage of £250,000 who locked into the average two-year fixed rate of 2.20 per cent in October 2017, if then transferred onto the predicted average lender’s SVR of 4.89 per cent in October 2019, will see their mortgage repayments increase by £4,336.20 per year with a rate increase of 2.69 per cent.
“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.
“The average two-year fixed rate has already fallen this month. However, 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 target remortgage customers – and therefore lower LTV tiers – as we approach October.”