The number of people opting to remortgage is expected to reach a peak later this year.
Research from Moneyfacts, published today (April 23), showed the interest rates for those who took out a two-year fixed mortgage in 2017 would more than double when they were transferred to the lender’s standard variable rate.
For example, the average two-year fixed rate in May 2017 of 2.30 per cent is set to hike to the current SVR of 4.89 per cent in May of this year.
Moneyfacts reported the average two-year fixed rate reached a record low of 2.2 per cent in October 2017.
Therefore, the projected average difference in the revert rate will increase from 2.59 per cent to 2.69 per cent, increasing the motivation to remortgage.
By comparison, the revert rate was less than 1.5 per cent at the start of 2017 and from 2009 to 2012, consumers made money when switching to the SVR from their fixed rate.
Last week, lending trends from UK Finance showed the remortgage market was on the rise. About 18,200 people remortgaged their home to gain extra funds in February — 10 per cent up on February 2018 — and those remortgaging without borrowing money increased by 7.8 per cent to 18,360.
Darren Cook, finance expert at Moneyfacts said: “Two years ago, the average two-year fixed mortgage rate fell notably, reducing from 2.31 per cent in January 2017 to a record low of 2.20 per cent in October the same year.
“The following month, the Bank of England increased base rate from 0.25 per cent to 0.5 per cent and the average two-year fixed rate increased to 2.35 per cent by December 2017. In comparison, the average two-year fixed rate currently stands at 2.47 per cent.
“Over the next six months, it is likely many mortgage borrowers who secured a two-year mortgage deal two years ago may see their record low interest rate expiring and will have no intention to revert to a rate that could see their interest rate double overnight.
“This significant increase in motivation for borrowers to switch mortgage deals, and the subsequent potential increase in remortgage business as a result, may push some mortgage lenders to marginally cut rates over the next few months to maintain a competitive edge.”
Daniel White, of White Financial Services, said he was not convinced the low rates would lead to a boom in the remortgage market.
He said: “Two-year fixed rates have been low for some time, so when someone is faced with reverting to a SVR it will of course have a huge impact on the expenditure the consumer has budgeted for.
“However, whether or not the remortgage market will see a huge increase remains to be seen. Given that rates are very low and very competitive, it seems that current lenders are offering very competitive rates to keep hold of the existing client which may then prevent them from remortgaging to a new provider.
“In addition, any change in circumstances may well prevent a client from switching providers and therefore will need to remain with the current provider and switch onto a new product with them.”
By Imogen Tew
Source: FT Adviser