Mortgage ‘bet’ saves you £1,300

Variable-rate mortgages can be cheaper than fixed deals. Adam Williams looks at how much borrowers could save

Homeowners could save up to £1,300 by shunning the safety of fixedrate mortgages as lenders rush bargain variable-rate deals to the market.

Around 90pc of borrowers opt for fixed-interest loans, looking for certainty over their monthly repayments. However, these customers could be paying much more than they need to.

Analysis for Telegraph Money showed that those who are willing to gamble on a variable deal could save £700 a year on their mortgage, plus a further £600 if rates fall next year.

Halifax became the latest lender to launch a bargain variable-rate deal when it unveiled its 0.98pc offer earlier this month. This is the lowest rate on the market, but other variable deals offer discounts relative to fixes.

Moneyfacts, the analyst, said the average variable-rate loan available today had an interest rate of 2.01pc, against 2.4pc for the equivalent fix.

As the name suggests, variable-rate mortgages can become cheaper or more expensive over their term. Often rates are tied to the Bank of England Bank Rate, meaning borrowers benefit if the central bank lowers its rate, but face higher payments should it rise. However, the Bank currently has little appetite to increase rates.

The potential savings have persuaded some borrowers to take a chance on a variable-rate loan. One is Harry Arnold, a finance professional from London, who believes that he can beat the market as he thinks rates are likely to fall.

The 31-year-old took out a two-year tracker with Accord Mortgages, part of Yorkshire Building Society, at a rate of 1.94pc. “I only have a 10pc deposit so I have been trying to achieve the best value deal,” he said. “The variable-rate mortgage I have taken is much cheaper than equivalent fixes.

“I don’t see it as an enormous risk because I am confident that interest rates will be moving down, as opposed to up. Even so, the bank has also offered me the option to switch to a fixed rate at any point in the future.”

Analysis conducted by SPF Private Clients, a mortgage broker, for this newspaper showed that borrowers could save large sums if they opted for a variable deal. Based on a homeowner borrowing 60pc of the value of a property worth £234,853, the average house price, customers could save hundreds of pounds a year by choosing a variable rate.

A borrower who took out Halifax’s 0.98pc deal would pay £4,826 over the two-year term, after fees are considered. This represents a £697 saving compared with the cheapest fixed-rate loan, where the customer would pay £5,523.

Borrowers would save even more if rates were to fall in three months’ time. If they dropped by 0.25 of a percentage point the borrower would pay £4,209 over two years. This represents a saving of £1,314 versus fixing.

Borrowers such as Harry Arnold, right, believe mortgage rates are more likely to fall than rise

Mark Harris of SPF Private Clients said: “This sub-1pc [variable mortgage] really is a rock-bottom rate. And, if rates were to go the other way and fall by a quarter of a percentage point, borrowers really would be quids in as that would mean a rate of just 0.73pc.” Despite the potential savings, homeowners are often reluctant to take out variable deals in case interest rates rise. Aaron Strutt of Trinity Financial, a mortgage broker, said this fear was often misplaced. “Many borrowers worry about rates rising, so they take a five-year fix, but they may not be aware of how quick and easy it is to swap a variable to a fixed mortgage later on,” he said. “Most lenders let customers move quickly.” Mr Strutt said variable rates were often ideal for customers who planned to move in the near future, as they generally had no early repayment penalties. In addition to Halifax, he said HSBC and Nationwide currently offered cheap variable-rate mortgages. However, borrowers should ensure their mortgage gives them the full benefit of any future fall in rates. Some have a “collar”, which means that even if Bank Rate falls dramatically, the borrower’s rate does not drop below a fixed level. While he is happy to gamble, Mr Arnold admitted that variable-rate deals weren’t for everyone. “My friends have taken out fixedrate loans because they don’t want to think about their mortgage too much, and they take comfort from that,” he said.

Businesses with legacy IT systems have been given a further year to comply with complex new digital tax rules. HM Revenue and Customs (HMRC) introduced new requirements, dubbed Making Tax Digital (MTD), in April. Since then, most self-employed people and business owners with a turnover above the £85,000 VAT threshold have been forced to file their returns online.

The move was widely criticised at the time, as small firms would have to spend hundreds of pounds on new software and staff training to comply.

The taxman previously promised that it would not issue any fines to businesses filing late in the 2019-20 tax year, unless firms were found to be deliberately avoiding the new rules.

However, HMRC has quietly introduced a new concession that will give some businesses more time before they have to file their first return. Those with complex or legacy IT systems now have until April or October 2020, depending on their filing deadline, to make their first submission. The taxman said that the latest move comes after industry experts and trade bodies expressed concern that firms would not be able to comply during the current tax year.

Small business owners must demonstrate to the taxman why they are unable to link their systems and set out how they plan to implement new software.

An HMRC spokesman said: “Through ongoing engagement with businesses and stakeholders, we identified that a small number of businesses using particularly complex IT systems would face difficulties with the 2020 deadline.

“Therefore, we have introduced a process to apply for additional time so that businesses are not penalised while making their best efforts to comply with all other MTD requirements.”

This newspaper revealed in September that the taxman had issued about 120,000 self-employed people with TV licence-style warnings after they failed to meet the new rules. Many firms failed to make their first submissions by the August deadline.