New research by comparethemarket.com shows that homeowners who roll onto an SVR could see their payments increase by £2,100 a year in interest alone.
The study indicates that 10% of households on fixed mortgage terms will see their fixed deals come to the end in the next six months – equating to around 850,000 homes.
The average mortgage debt in the UK is just over £130,000 and a typical mortgage term is around 20 years. The average two-year fixed mortgage rate two years ago in June 2017 was 2.30%, according to Moneyfacts. By contrast, the average SVR today is 4.89%, a jump of 2.59%. Homeowners coming to the end of a two-year fixed mortgage and rolling onto an SVR would therefore pay £175 more each month, jumping from an average of £680 to £855.
By contrast, today’s average two-year fixed term rate is 2.47% meaning the same homeowner’s bills would only rise £11 a month to £691 if they were to re-mortgage onto the average fixed rate. The difference may be even less if they choose one of the more competitive rates available on the market.
Of those homeowners who have stuck with a standard variable rate mortgage, 28% said that they didn’t think it would save them much money. 21% have not switched because they are not worried about rising interest rates. This is in spite of the fact that 35% say they would have to cut other costs to afford the payments, should interest rates rise in the future. As many as 16% said they simply have not got around to re-mortgaging.
11% have not switched off an SVR because they are worried about not meeting the borrowing criteria of lenders. comparethemarket.com has launched its Mortgage Eligibility Checker, which calculates how much you might be able to borrow and whether you are eligible for a mortgage.
Mark Gordon, director of money & mortgages at comparethemarket.com, said: “Rolling onto a standard variable rate mortgage can cost you thousands of pounds. We may be in a ‘lower for longer’ rate environment now, but that doesn’t mean interest rates will remain at rock bottom forever.
“For those people on a standard variable rate mortgage, the additional costs should be a wake-up call. Not only could your mortgage get more expensive if the base rate rises, but SVR mortgages tend to be much more expensive than fixed rate deals available.”