The single switch that could save you £600 a year
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,