In the wake of the recent Bank of England base rate increase from 5% to 5.25%, a fresh study by Compare the Market highlights that UK homeowners on standard variable rate mortgages (SVRs) could potentially slash their monthly repayments by up to £257 through switching to fixed-rate repayment mortgage deals. This represents a substantial annual saving of £3,084.
The research comes at a time when interest rates and living costs have surged over the past year. The study reveals that the average SVR rate stands at approximately 7.85%, whereas the average 5-year fixed mortgage rate sits at 6.37%, according to the latest data from Moneyfacts. This 1.48% difference could translate into significant monthly savings for borrowers.
Homeowners with an average mortgage debt of just over £257,000, who are nearing the end of a fixed-rate mortgage, could experience considerable increases in monthly expenses if they transition to their lender’s average SVR. According to the Office for National Statistics (ONS), over 1.4 million households with fixed-rate mortgages are up for renewal in 2023.
However, despite the potential for savings, the past year’s sharp increase in rates has contributed to elevated financial pressure for mortgage holders. In August 2022, the average two-year fixed rate was 3.95%, compared to the current 6.85%, representing a 2.9 percentage point surge.
In response to these challenges, prominent mortgage lenders, the Financial Conduct Authority (FCA), UK Finance, and the UK Government came together to create the Mortgage Charter, aiming to enhance transparency in lending practices, ensure fair treatment of borrowers, and make mortgages more accessible and affordable.
Alex Hasty, director at Compare the Market, said: “Finding a new fixed deal on your mortgage when your current one comes to an end, as opposed to moving onto your lender’s standard variable rate, could be a way to secure a more preferable interest rate and also helps ensure you have a clear idea of your monthly outgoings.”
