Mortgage blog: Why it is time to take advantage of falling fixed rates
Posted 19 December 2013 by Keith Osborne
Are you thinking of remortgaging? If you are on your lender's standard variable rate (SVR) then now could be the perfect time to take advantage of a fixed-rate deal. That's the view of a leading expert after new data from the Bank of England shows that the gap between fixed and variable rate deals is widening.
The gap between the average 75% two-year fixed-rate mortgage and the average standard variable rate has grown from 1.27% at the start of 2013 to 1.88% now.
New data from the Bank of England has found that fixed rates have fallen much faster this year than lender's standard variable rates.
Since the start of the year, the average rates on a two-year fixed-rate mortgage with 25% equity or deposit have fallen by 0.63 percentage points to 2.48%. Five-year fixed rates have fallen by 0.34 percentage points over the same period from 3.71% to 3.37%.
However, during the same period standard variable rates have fallen by just 0.02 percentage points to 4.36%.
Keith Osborne, editor of Whathouse.co.uk, says: "Over the past year the cost of fixed-rate mortgages has fallen sharply while lenders have broadly maintained their SVRs at the current level. As the economy starts to recover there is only one way that your lender's SVR is going to go - and that is up. So, it could well pay to take advantage of a low-cost fixed rate now."
SVRs likely to increase fast when the base rate finally rises
The Financial Times reports that the Financial Conduct Authority recently wrote to banks to warn them that they had to treat customers properly when considering further changes. "We recognise that mortgage lenders may want to vary their SVRs or other terms in their contracts, but we are concerned that the factors driving changes to SVRs may not always be transparent to consumers," said the letter.
This warning comes after two lenders - Bank of Ireland and the West Bromwich - recently used clauses in their terms to raise rates for buy-to-let customers.
Osborne adds: "When interest rates start to rise I have no doubt that lenders will try and increase their standard variable rates by as much as they possibly can. I expect many of these to rise by more than any base rate increase which could make taking a fixed rate now even more beneficial."
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