Around 693,000 borrowers could benefit from the change of rate due to the difference between the average rates of the two options among major lenders, according to Mojo Mortgages.
As it stands, the average offer for an SVR is 8.24% and the average two-year fix is 4.68% among the six biggest lenders in the UK: Lloyds, HSBC, NatWest, Nationwide, Santander and Barclays.
The average payment per month is £1,581 for an SVR at 8.24%, while among the ‘big six’ lenders, a 4.48% average rate for a two-year fix comes to £1,136 – a £445 difference.
This is based on a 75% loan to value (LTV) and a 25-year loan term.
Mortgage rates are expected to fluctuate since the Monetary Policy Committee (MPC) voted to reduce the Bank of England base rate from 4.75% to 4.5% – however, widespread drops in mortgage rates are not guaranteed.
Your Mortgage Awards 2024/25: winners revealed
Sponsored by Your Mortgage Awards
Laura Suter, director of personal finance at AJ Bell, said: “Many homeowners will be baffled that despite multiple interest rate cuts, average mortgage rates are higher than they were a year ago. Even ahead of [the] base rate cut, which looked like a dead cert, mortgage rates headed in the opposite direction.
“Two-year fixed rates are now higher than they were in November last year and only a smidge lower than February last year – despite two base rate cuts since then – while five-year rates are higher than two years ago.”
The potential benefits of switching mortgage rates from SVR to fixed rate include predictable monthly payments, protection from interest rate increases and the chance to pay more of the principal balance of your loan as opposed to interest charges.
As well as the financial benefits, borrowers can get peace of mind on their outgoings.
The firm noted: “Switching to a fixed rate mortgage can take the pressure off having to constantly monitor interest rates, or worrying about how economic changes may affect your mortgage payments.”
The broker has provided four tips to consider before making the switch to a fixed rate.
Four SVR switch tips
1. Is there an early repayment charge (ERC)? These fees can range from 1% to 5% of your outstanding balance if you leave your current mortgage early. For example, on a £200,000 mortgage, a 3% ERC would cost you £6,000. Weigh these charges against the potential savings from switching.
2. How long do you plan on staying in your property? If you anticipate moving within the next few years, a shorter fixed term (like a two-year fix) might be more suitable, offering flexibility without the long-term commitment. Also, think about potential life changes such as starting a family, changing careers, or retiring, which could affect your housing needs and financial situation.
3. Do you need to pay an arrangement fee? Lenders often charge fees to set up a new mortgage, averaging around £1,000, but can range from £0 to over £2,000. Some lenders even offer fee-free deals – so working with a mortgage broker can help you compare the overall costs of different options.
4. Have you spoken to a mortgage broker? Speaking with a mortgage broker can provide personalised advice tailored to your financial situation. They can guide you through available mortgage options, ensuring you look beyond just the interest rate and consider all associated costs to understand the true expense over the mortgage term.
