250,000 UK Fixed Rate Mortgages to Reset 3pcent Higher This Winter
Housing-Market / UK Housing Sep 08, 2007 - 09:36 AMBy: Nationwide
Nationwide reveals that over 250,000 borrowers will see their two year fixed rate mortgage mature between October and December 2007 and are likely to see their average monthly payments increase by around £200* per month as lenders start to charge them their standard variable rate.
Two years ago, in Autumn 2005, fixed rates dipped to a low point, with an average rate for a two year deal being just 4.56%. If borrowers on these low rates don't take any action when their deal matures, they will automatically move onto a standard variable rate mortgage, with a current average rate of around 7.75%. This will lead to a rate increase of over 3%.
Even if these ‘rate shocked' borrowers remortgage to another two year fixed rate deal or try to secure a rate for a longer period they are still likely to experience an increase in payments. Since Autumn 2005, the average two year fixed rate has risen by over 1.80% from 4.56% to around 6.41%. On a £100,000 mortgage, this increase would cost customers an additional £110 per month.
In order to keep monthly repayments as low as possible, borrowers need to be choose their mortgage carefully. For example, a five year fixed rate with Halifax costs 6.89% compared to just 6.13% at Nationwide. Each month this difference in rate would cost borrowers £44. Over the five year deal period it would cost a borrower £2,675 more.**
Borrowers can often save money by switching to a new mortgage before their current deal ends. Many believe that to avoid early repayment charges they must wait until their deal expires before arranging a new fixed rate. However, Nationwide allows borrowers to switch to another Nationwide deal in the final three months of their fixed rate without any penalties. This avoids borrowers moving onto standard variable rates, which are usually higher than fixed rates.
Matthew Carter, Nationwide's director of mortgages, said: "For some borrowers it will come as a quite a fright to see their mortgage payments increase dramatically. To absorb some of this shock, borrowers need to consider remortgaging as soon as their deal ends, or beforehand if their lender allows it. Those who prefer to avoid the unexpected may be thinking about fixing for a longer period. Since the Bank of England base rate has been rising we have seen a great deal of interest in our longer term deals, including our 25 year fixed rate deal."
For further information please contact :
Zoe Stevens, tel: 01793 655423, email: zoe.stevens@nationwide.co.uk
Steve Blore, tel: 01793 655199, email: stevew.blore@nationwide.co.uk
Notes
*Based on an average loan size of £120,869, monthly mortgage payments would rise from £676 (based on a fixed rate of 4.56%) to £913 (based on typical SVR of 7.75%) – payment shock of £237.
** Savings are over the five year deal period of the mortgage and are based on a term of 18 years, a repayment loan of £102,282 at an LTV of 75%. Calculations assume reservation fees are paid upfront.
250,000 borrowers are due to come to the end of a two year fixed rate mortgage between October and December 2007 – figures sourced from CML.
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