Why You Could Be in for a Shock if Your Two-Year Fix is Ending

Did you take out a two-year fixed mortgage or remortgage in 2017?

Then congratulations. But we’ll temper our compliment with some advice. You need to take action and soon – or you could be in for a shock.

If this was you, then you were fortunate enough to get your hands on a two-year product that had some of the lowest rates ever known.

In January 2017, the average two-year fixed rate mortgage clocked in at just 2.31%.

Interest rates have risen since then however which means that even though you’ve been basking on a super-low rate, you’re now facing your lender’s SVR (standard variable rate).

Steep SVRs are Looming

The average SVR rose from 4.75% in January 2018 to 4.90% in December 2018 – its highest level since 2009.

SVRs have steadily crept up since last summer when the Bank of England raised interest rates above the emergency level introduced after the financial crisis. It did this amidst mounting fears about the economic impact of Britain crashing out of the EU without a deal.

What all this means is that the financial motivation for anyone nearing the end of a fixed rate deal to remortgage to a new product has jumped to an 11-year high.

If you don’t, you’ll fall (or rather soar) onto your lender’s SVR (typically around the 5% mark) – and you’re likely to feel the financial pain of that difference in outgoings.

Don’t Be a SVR Sitting Duck

A Standard Variable Rate is the mortgage interest rate that you’re most likely to find yourself on after finishing an introductory fixed, tracker or discounted deal.

The SVR is a type of variable rate. It means your payments can go up or down according to changes in interest rates.

Being on one leaves you vulnerable. That’s because the rate you pay on a SVR mortgage gets decided by your mortgage lender. So, if the Bank of England Base Rate went up by 0.5%, your lender could choose to leave your SVR unchanged or to increase it as they see fit.

Calculations show that in terms of repayment amounts, a homeowner with a £200,000 repayment-only mortgage over a term of 25 years would see their monthly outgoings rise by £279.34 a month – or £3,352.08 a year – if they remain on their current lender’s SVR.

However, if you take action and remortgage to a new short-term fixed rate deal – on which the average rate is currently 2.52% – you’re likely to be shelling out closer to £257.30 a month. Do your sums and you’ll discover that’s £3,087.60 a year cheaper than if you don’t remortgage.

The impact of the SVR is something to which too many UK homeowners seem blissfully unaware. By not understanding how much they’re paying, many homeowners have monthly outgoings that are far higher than they need to be.

Research shows that nearly a third of mortgage holders are languishing on standard variable rates as Brexit looms.

We also recommend you read our news article which explains the impact Brexit might have here: Why Brexit makes Now a Shrewd Time to Remortgage.

Even in steady economic times this is a risky tactic. But with the current uncertainty over Brexit, it’s ill-advised.

Do you have questions about remortgaging after the end of your fix or would like some advice on the right product type for your situation? We are happy to help you here.

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