Failure to remortgage at the end of your deal could see your rate double
Borrowers who chose a cheap two-year fixed rate mortgage two years ago (at an average rate of 2.31%) are likely to revert to a standard variable rate (SVR) that is more than double the initial fixed rate, said Moneyfacts.
Standard variable rates are currently an average 4.9%, meaning that the gap between the cheap fixed deals borrowers are currently on and what they would automatically revert to is at its widest level – 2.59% – for 11 years, according to Moneyfacts.
This could lead to massive payment shock for borrowers who fail to switch their deal, as they face much higher monthly repayments.
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Darren Cook, finance expert at Moneyfacts, explained: “Two years ago, the mortgage market was experiencing an aggressive drop in rates, which saw the average two-year fixed mortgage rate fall from 2.56% in January 2016 to 2.31% in January 2017.
“Borrowers who took advantage of this increased competition between lenders at the time could now see a difference of 2.59% between their previous fixed rate and the current average SVR (4.90%).”
The good news is that bororwers coming to the end of a two-year fixed rate will be eligible to switch to a new deal at the end of their fixed period.
New fixed rates are still very competitive so you will hopefully find a deal that meets your needs.
If you do nothing you will automatically move onto your lender’s higher standard variable rate, which will mean a rise in your monthly mortgage repayments.