Fixed-rate borrowers ‘in for a shock’

MORTGAGE BORROWERS who stick with their existing loan when their initial fixed-rate deal comes to an end could be in for a shock, a financial information website has warned.

Analysis from Moneyfacts found borrowers who took out a two-year fixed rate mortgage two years ago, at an average rate of 2.31 per cent, may now find themselves reverting to a standard variable rate (SVR) that is more than double their initial fixed rate.

The website warned that, depending on individual circumstances, this could add hundreds of pounds to someone’s monthly mortgage bill and up to thousands of pounds per year.

Borrowers tend to end up on their lender’s SVR when the period for the rate they initially took out comes to an end.

Darren Cook, a finance specialist at Moneyfacts, said there had been an aggressive drop in mortgage rates two years ago.

He said: “Borrowers who took advantage of this increased competition between lenders at the time could now see a difference of 2.59 per cent between their previous fixed rate and the current average SVR (4.9 per cent).”

Mr Cook said that, based on someone paying off a £200,000 mortgage over 25 years, borrowers could find their payments increase by £279.34 a month or £3,352.08 a year on average if they settle for their provider’s SVR.

Mr Cook said customers facing such a jump in costs are likely to be motivated to re-mortgage, with the current higher two-year fixed rates of 2.37 percentage points below the current average SVR.

He said: “Faced with such a big jump in monthly repayments, it clearly pays for borrowers to shop around and re-mortgage once their initial rate has come to an end. However, customers must consider all aspects to ensure they are getting the best deal.”