One in five remortgage borrowers consider variable rates as payment shock looms, data reveals
Moneyfactscompare.co.uk found that 21% of remortgage borrowers researching mortgages on the comparison site considered variable or tracker products in September, up from 14% in July.
Around one in five remortgage borrowers considered variable or tracker mortgages in September as higher fixed rates have increased the potential payment shock for those refinancing, according to analysis from Moneyfactscompare.co.uk.
The data showed 21% of remortgage borrowers researching mortgages on the comparison site considered variable or tracker products in September, up from 14% in July.
Homemovers recorded a smaller increase, from 6% to 7% over the same period.
First-time buyers (FTBs) moved in the opposite direction, with the proportion considering variable or tracker products falling from 31% in July to 12% in September.
Moneyfacts said borrowers coming off older fixed-rate deals could face particularly large increases in monthly repayments.
A borrower with a £250,000 mortgage over 25 years who took a 5-year fix at an average rate of 2.38% in September 2021 would have paid around £1,106 a month.
Moving onto an average two-year fixed rate of 5.93% would increase this to approximately £1,600, a rise of £494 a month.
By comparison, an average 2-year tracker rate of 4.54% would result in monthly repayments of around £1,395, £289 more than the borrower’s previous payment but around £200 less than the average 2-year fix.
Adam French, head of consumer finance at Moneyfactscompare.co.uk, said: “Higher rates are changing borrower behaviour, with around one in five remortgage borrowers researching mortgages on Moneyfactscompare.co.uk considering a variable or tracker mortgage in September, up from a more typical 13 to 14%.
“It shows a growing number of remortgage borrowers are increasingly prepared to take on some interest rate risk in return for keeping their initial mortgage costs down by looking to variable and tracker rates.”
He added: “This is a gamble given current rate expectations. If base rate rises as markets expect, tracker borrowers will see their monthly repayments increase, eating into the saving they are making today.
“Anyone considering a variable mortgage therefore needs to stress-test their budget rather than simply looking at the initial saving.
“First-time buyers have moved in the opposite direction with the proportion of FTBs researching variable and tracker mortgages falling sharply, from 31% in July to 12% in September.
“It may be that, as the mortgage market has become more volatile, many aspiring buyers have become less willing to take on the uncertainty of a variable rate.
“The calculation is different for remortgage borrowers facing a big jump in their monthly payments. They may be more willing to accept some uncertainty if it gives them a chance to avoid the full extent of that payment shock.
“But a lower initial payment should not be confused with a guaranteed saving over the life of the mortgage and borrowers need to be confident they can still afford the loan if rates move higher.”
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