SCOTTISH borrowers could boost their disposable incomes by £2,756 - equivalent to 9.4 per cent of the average salary of £29,588 - by switching from their lender’s standard variable rate (SVR) to a cheaper mortgage deal, according to analysis by online broker Trussle.
Many homeowners lapse onto their lender’s SVR at the end of a fixed-term deal even though that is usually the most expensive rate. Trussle chief executive Ishaan Mahli said they could save substantial amounts by switching to a new deal.
“There are two million borrowers in the UK who pay the SVR, collectively missing out on up to £9 billion of savings,” he said. “It’s crucial they take action now.”
There are plenty of good mortgage deals on the market as competition among lenders is hotting up. Rachel Springall of Moneyfacts, the financial data provider, said: “Mortgage rates are at record lows and product numbers are at record highs. A decade ago, there were only three products for borrowers with a 5% deposit. Today, the same borrower can choose between 391 products.”
Borrowers with deposits of 40% or more also have a wider choice of deals – 588, compared with 272 in March 2009.
Mortgage rates are also plunging. The average rates for two-year and five-year fixed deals have nearly halved over the past decade, according to Moneyfacts. The average two-year fix has fallen from 4.79% in March 2009 to 2.49% today while the average five-year fix has dropped from 5.62% to 2.89% during the same period. On the other hand, the average SVR has remained fairly static at 4.89% today compared with 4.77% in March 2009, making the case for switching away from the SVR even more compelling.
For example, a borrower with a £200,000 repayment mortgage with a 25-year term would pay £1,156 a month on the average SVR of 4.89%. By switching to HSBC’s two-year fix at 1.64% their monthly payments would drop to £813, a saving of £343 a month - more than £4,000 a year. The minimum deposit for the HSBC loan is 20% and there is a £999 product fee, although the deal comes with a free valuation and free legal fees.
The gap between two- and five-year fixes is also closing. In March 2009 you would pay on average 5.62% to fix for five years, 0.83 percentage points higher than the average two-year fix of 4.79%. Now, the average five-year rate is 2.89%, 0.4 percentage points higher than the average two-year rate of 2.49%.
David Hollingworth of broker L&C Mortgages said: “Economic uncertainty around Brexit, as well as the increase to the base rate in August 2018, are encouraging borrowers to turn to fixed-rate options and we’ve seen more customers electing to lock their rate in for longer.
“Five-year fixed rates are available at a relatively slim margin over the shorter-term deals and that is leading more borrowers to seek out the medium-term security that they provide.”
HSBC has a five-year fix at 1.84% with a minimum deposit of 40% and a £999 fee. Skipton charges a slightly lower rate of 1.83%, but with a much bigger £1,995 fee.
First-time buyers, and borrowers with only a small deposit, are also benefiting from competition in the mortgage market.
“Rates are still higher than for those who can stump up a bigger deposit, but lender competition is at least leading to improved choice for first-time buyers,” Mr Hollingworth said.
The average two-year fix with a 5% deposit has fallen from 3.46% to 3.38% since the start of 2019, according to Moneyfacts. Some of the new deals are from high-street brands, such as a 2.88% two-year fix from Barclays.
“If first-time buyers are eyeing up a potential deal, they would be wise to review those with an attractive incentive package to save on the upfront cost,” Ms Springall said. “Deals with a free valuation, free legal fees and that are fee-free could be ideal for borrowers with limited cash after using up their savings for the deposit.”
Despite this, borrowers could find that the cheap rates do not remain around for long.
“Borrowers must be aware that this current lending environment is unlikely to continue indefinitely and lenders could slow down this aggressive pricing if they see fit, meaning rates may rise as they did between March and November last year, when they increased by 0.14%,” Ms Springall added.
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