Remortgage rates have fallen: If you’ve slipped onto an SVR of 8% or more, could now be a good time to fix?

The Bank of England’s decision yesterday to hold the base rate again will leave many homeowners with a mortgage wondering whether the worst is over.

In reality, mortgage rates have already fallen. Looking at the cheapest remortgage deals from the top ten lenders, interest rates have fallen significantly in recent months.

According to analysis from L&C Mortgages, two-year interest rates have fallen on average from a high of 6.18 percent in August 2023 to 5.4 percent now.

On an amount of €200,000 repaid over 25 years, that is the difference between €1,311 per month in August and €1,216 per month in November – almost €100 per month less.

Meanwhile, those taking out a new mortgage with the cheapest five-year interest rate have seen the average interest rate fall from 5.69 percent to 5.02 percent over that period.

It’s worth pointing out that the lowest five-year fixed rate remortgage currently stands at 4.84 percent, while the lowest two-year rate is 5.09 percent.

Homeowners typically must have built up at least 40 percent equity in their home (60 percent loan-to-value) to qualify for the cheapest deals.

However, thanks to the strong increase in house prices in recent years, many refinancing mortgages are likely to end up in this ‘equity rich’ category.

While many fixed-rate borrowers are protected from current interest rates until their existing deals end (usually after two, three or five years), there are others who could realize immediate savings by fixing now.

No fewer than the 680,000 mortgage holders who rely on their lenders’ standard variable rate (SVR), according to data from UK Finance.

This is the higher variable interest rate that borrowers expect at the end of their deal when their original deal expires. These can often be between 8 percent and 9.5 percent, depending on the lender.

For example, Halifax currently charges its SVR borrowers 8.74 per cent and Virgin Money charges 9.49 per cent.

Some people who currently have an SVR are technically mortgage prisoners, meaning they are trapped with inactive lenders who are not offering new mortgage products, while being unable to pass the affordability checks of other lenders.

However, this is only a minority: a group of fewer than 50,000, according to the FCA.

The vast majority of people with SVRs should in theory be able to either take out a new mortgage with a new lender or, failing that, switch to a new deal with their existing lender.

The potential savings this produces can amount to thousands of euros per year.

The average SVR is 8.19 percent, according to Moneyfacts, while the average five-year fix across all products is 5.87 percent.

On an outstanding mortgage of €200,000 to be paid off over 25 years, that could be the difference between paying €1,569 per month and €1,273 per month, equating to an annual saving of €3,552.

David Hollingworth, associate director at L&C Mortgage, says: ‘If you have an SVR, the message should be to act quickly.

‘Standard Variable Rates have continued to rise as they respond to base rate movements, with many now charging rates well above 8 percent.

‘As fixed rates fall, the gap between what an SVR borrower pays and what they could potentially get by fixing will only widen.

‘Getting advice is the best thing we can do. The market may have tightened in terms of affordability as interest rates have risen, but lenders are keen to attract new customers and assuming there are no options can be costly.

‘An adviser can also look at the options available to the existing lender, giving them a full overview of what the best option might be.’

> How to remortgage your home: a guide to finding the best deal

What about those whose fixed-rate mortgages are coming to an end?

Every week, tens of thousands of fixed-rate mortgage customers come to the end of their deal.

About 1.6 million fixed-rate mortgage deals will end next year, according to UK Finance. Many of these have very low rates of 2 percent or less.

Although they will see their monthly repayments increase significantly, falling mortgage rates will at least limit the damage somewhat.

Mortgage brokers predict that interest rates will fall further from now on. However, they expect this to happen very gradually.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘Borrowers will be wondering what happens next.

“Those hoping that interest rates will come down soon could be disappointed; We expect a period of approximately six months during which interest rates will stabilize, followed by a gradual reduction in the base rate to a ‘normalized’ level of approximately 3 percent.

Chris Sykes, technical director at mortgage broker Private Finance, added: ‘The base rate maintained may inspire a bit more confidence among lenders, so this could lead to some rate cuts, but it will likely keep things at the same level as most lenders at expected on the basis of basic expectations. rate remain flat.

“From there, we will generally see very gradual cuts to fixed rates as we get closer to when the base rate starts to cut, but we don’t expect to see major changes anytime soon.”

So the advice for those coming to the end of their fixed rate mortgage is to speak to a broker and get a deal done six months in advance.

If prices drop in the meantime, you can ignore the first offer and take out an alternative, better deal.

David Hollingworth added: ‘With a new decision, borrowers will now be hopeful that they have seen the last rise in interest rates.

‘Of course we have to avoid any more nasty surprises and see inflation fall further, but the mortgage market has already shown much more stability.

‘Mortgage rates have been slowly improving and yesterday’s decision should only ensure that this trend continues for the time being.

‘Nevertheless, borrowers nearing the end of their current deal should shop around to ensure they have an interest rate.

“They will be able to assess whether the market continues to improve, but having a rate should help avoid an expensive period with a standard variable rate that could be well above 8 or even 9 percent.”