The sin­gle switch that could save you £600 a year

The Daily Telegraph - Your Money - - FRONT PAGE -

Many bor­row­ers’ mort­gage deals are due to end this year and switch­ing to a new one could save you money, says Sam Mead­ows

Mort­gage bor­row­ers are ex­pected to switch to new loans in large num­bers this year as ex­ist­ing deals ex­pire – and many will be able to save sig­nif­i­cant sums be­cause rates now are lower than they were when their ex­ist­ing deals were taken out.

Anal­y­sis for Tele­graph Money sug­gests that more than half a mil­lion mort­gages could be due to ma­ture in the next 12 months. And thanks to cur­rent low mort­gage rates, a typ­i­cal bor­rower could save £50 a month – or £600 a year – by switch­ing from an old two-year fix, the most pop­u­lar type of loan, to a new one.

Home­own­ers who do not re­mort­gage will au­to­mat­i­cally be shifted to their lender’s vari­able rate, which is likely to be much higher than the rate on their cur­rent deal, so act­ing in good time is es­sen­tial. The gap be­tween fixed and vari­able rates has also widened hugely in the past five years ( see graph on Page 3).

The surge in ac­tiv­ity in the buy-to­let mar­ket in 2016, be­fore higher rates of stamp duty for land­lords took ef­fect, also means many prop­erty in­vestors’ two-year deals will come to an end in the first three months of this year.

We ex­plain how home­own­ers and land­lords could make the most of the op­por­tu­nity to switch mort­gage deals this year.

Just over a mil­lion mort­gages, count­ing those for new pur­chases and re­mort­gages, were ad­vanced in 2016, the high­est num­ber since 2008. Around 95pc of bor­row­ers tend to choose fixed-rate deals and slightly more than half of those would have had a term of two years, ac­cord­ing to David Holling­worth of London & Coun­try, the mort­gage bro­ker. This means their cheap loan is likely to ex­pire this year.

Mr Holling­worth said there would also be a small num­ber of five-year fixed rates ma­tur­ing from 2013, while some bor­row­ers would come off vari­able rates, mean­ing that al­to­gether more than half a mil­lion deals were likely to ex­pire this year.

Cal­cu­la­tions by Tele­graph Money show that some­one who bor­rowed £200,000 in 2016 at the av­er­age twoyear fixed rate of 1.88pc could save £50 a month if they fix now. This as­sumes that they can ac­cess the best rate for that size of loan, cur­rently 1.35pc from Mon­mouthshire Build­ing So­ci­ety, ac­cord­ing to Money­facts, the data firm.

Jeremy Dun­combe, a di­rec­tor at Le­gal & Gen­eral Mort­gage Club, said many bor­row­ers would be able to save money. “In­creas­ing mar­ket com­pe­ti­tion along­side ris­ing house prices has meant that many bor­row­ers can now ben­e­fit from re­mort­gag­ing,” he said.

Bor­row­ers may be wor­ried about fur­ther rises in of­fi­cial in­ter­est rates from the Bank of Eng­land, but mort­gage ex­perts played down the likely im­pact.

Ray Boul­ger, from bro­ker John Char­col, pre­dicted that Bank Rate would be 0.75pc (cur­rently 0.5pc) by the end of the year, but added: “The Bank is un­likely to want to get too ag­gres­sive un­til the re­sults of the Brexit ne­go­ti­a­tion are known, and even af­ter then there will still be un­cer­tainty.”

He said a rise in Bank Rate would not au­to­mat­i­cally mean mort­gages be­came more ex­pen­sive. “If a quar­ter­point rise is all we get, there’s not re­ally any rea­son the cost of mort­gages should in­crease be­cause it’s al­ready been priced into the mar­ket in terms of [rates on the whole­sale bor­row­ing mar­kets],” he said.

Bor­row­ers whose mort­gages were linked to Bank Rate would be af­fected, how­ever. Some­one who owed £200,000 and paid a vari­able rate of 5pc would pay an ex­tra £59 a month, or £708 a year, if Bank Rate rose by half a per­cent­age point.

The first week of 2018 has seen lenders con­tinue to cut fixed rates,

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