Our research shows that the monthly payments on fixed rate mortgages taken out just six months ago can already be beaten. Amidst the backdrop of ever-increasing base rates and a cost-of-living crisis, those that locked in a mortgage deal just six months ago could already be up to £234 a month better off by transferring to a new deal, even with paying early repayment charges.
Example based on the average UK house price of £291,000: A homeowner with a Nationwide mortgage* taken out in December 2022 with a borrowing rate of 6.24%, could now switch to a borrowing rate of 3.99% and save up to £68 on their monthly mortgage payments, even with a possible early repayment charge of £1,674. While it would take 12 months to start reaping the rewards, switching mortgages would still leave the homeowner £1,161 better off over the remaining term of their current initial rate period by making the switch now.
Example based on the average London house price of £566,000: A homeowner with a Barclays mortgage** taken out in November 2022 with a borrowing rate of 5.52%, could now switch to a borrowing rate of 4.33% and save up to £234 on their monthly mortgage payments, despite a possible early repayment charge of £4,465. While it would take 12 months to start reaping the rewards, switching mortgages would save the homeowner £3,421 over the remaining term of their current initial rate period by making the switch now.
Our Chief Commercial Officer Martin Leonard says: “We know that many are feeling the financial pressure right now, and anything they can do to reduce their monthly mortgage payments is a much needed and welcome reprieve. Mortgage payments are normally the highest monthly outgoing for any household and even just a slight increase in borrowing rate can have a significant impact. Many of those who switched mortgages just six months ago would have seen increases of anywhere between 2-4% on their borrowing rates. With inflation and widespread wage stagnation, this is a big jump.”
Our data shows that despite the interest rate rises, lending rates are now relatively stable at 5.13% for a fixed and 5.05% for a variable for two years and 4.80% for a five year fixed***.
Martin continues: “There has been so much economic uncertainty over the last six months that it has been difficult for homeowners to know when to buy or remortgage. Should they go now, or are they better off waiting to see what happens next? But by tracking the data, we believe that despite the turmoil, borrowing rates have now peaked and we do not expect these to increase.
“Lenders need to lend, and have been factoring possible increases into their pricing for a few months now which means that even if the interest rate rises again, borrowing rates are likely to remain stable.”
We are also seeing lenders differentiating themselves in the market in a bid to win new customers. Lenders such as NatWest allow you to take a tracker but opt in to a fixed at any point with no fees payable. Virgin Money also have a ‘switching’ policy where customers can opt to take a new rate when their deal is six months in, allowing the borrower to switch to a cheaper deal if one becomes available prior to the term expiring.
“With less buyers in the market, lenders need to find innovative ways to entice customers in. We’re seeing much more competition in the market and expect to see more initiatives like these coming through.”
***As of close of play 16th May 2023