Homeowners urged to switch mortgage deal to save £330 a month as Bank of England slashes rates
Experts are urging people to check their mortgage deal to see if they can save money
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Homeowners could save up to £330 per month by switching from a standard variable rate (SVR) mortgage to a fixed-rate deal, according to new analysis by Compare the Market. This amounts to £3,960 in annual savings.
The potential for significant savings comes as the Bank of England recently reduced the base rate from 5.25 per cent to five per cent.
Switching from the current average standard variable rate (SVR) of 8.16 per cent to an average five-year fixed mortgage rate of 5.38 per cent could result in people keeping more money.
Even opting for an average two-year fixed rate of 5.77 per cent could save homeowners up to £3,432 annually on their mortgage repayments.
Analysts cite these figures as to why is important to shop around for mortgage deals, especially for those whose initial mortgage terms are ending.
The recent rise in interest rates can be attributed to the Bank of England's efforts to combat high inflation.
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The Bank of England has begun to cut interest rates
GETTYHowever, the decision to cut the base rate to five per cent signals a potential shift in monetary policy.
This change has begun to impact mortgage rates, with some lenders already reducing their fixed-rate offerings.
Despite this positive trend, fixed rates remain historically high. The Bank of England's Financial Stability Report indicates that over three million people are still paying rates below three per cent.
However, most of these low fixed-rate deals will expire by the end of 2026. As homeowners transition off these deals, they face significant increases in mortgage repayments.
The report suggests an average increase of £180 per month, equivalent to a 28 per cent rise in monthly payments.
This situation underscores the importance of carefully considering mortgage options in the current economic climate.
Fixed-rate mortgages offer borrowers a set interest rate for a specific period, typically two to five years. This provides stability and predictable monthly payments.
In contrast, SVR mortgages have variable rates set by lenders, which can change at any time. These are often higher than fixed rates.
Currently, fixed-rate deals are particularly advantageous. With the average SVR at 8.16 per cent, switching to a fixed rate could yield substantial savings.
For example, a five-year fixed rate at 5.38 per cent could save homeowners up to £3,960 annually. Even a two-year fixed rate at 5.77 per cent offers potential savings of £3,432 per year.
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Interest rate hikes have pushed up mortgage repayments for many GETTY These figures demonstrate the financial benefits of opting for a fixed-rate mortgage in the present market, especially for those coming off existing deals or currently on SVR mortgages.
Tom Lyon, Money Expert at Compare the Market, said: "Households will welcome falling mortgage rates after the recent Bank of England decision. However, fixed rates remain high by historical standards, and borrowers who locked in low rates years ago could face substantially higher mortgage costs if their previous deal expires soon."
Lyon advised homeowners coming off mortgage deals to shop around online for better fixed-rate options. This approach could potentially save thousands in annual repayments compared to defaulting to an SVR.
He emphasised the importance of staying informed about market developments.
"It's a good idea also for homeowners to keep a close eye on how the market continues to evolve so as to be as informed and confident as possible in their financial decisions," Lyon added.