Customers on fixed-rates could see increases of £2,160 a year
Over a million homeowners who took out a fixed-rate mortgage three years ago are being urged to review their deals now or risk seeing their repayments increase massively.
Analysis from MoneyExpert.com has revealed that people whose three-year deals are due to expire will be moved to average standard APRs of around 6.55 per cent ñ over two per cent higher than the average rate adopted by homeowners in 2003 ñ unless they act now.
Average fixed-rate mortgages in 2003 had APRs of just 4.22 per cent*, owing largely to a low Bank of England base rate of just 3.5 per cent. But as interest rates have increased, lenders have raised the APRs customers move to once their fixed-rate deals run out to compensate.
That means borrowers who either bought a house or remortgaged on three-year deals in 2003 will risk paying large standard variable rates ñ the average of which is now around 6.55 per cent.
Homeowners paying 4.22 per cent on a £100,000 mortgage on a repayment basis in 2003 would have faced monthly payments of around £545. But if they move to a 6.55 per cent rate now their payments will rocket to £725 a month. That is an extra £180 a month or £2,160 more a year.
The current fixed-rate average APR is 5.55 per cent, but deals start from as low as 1.8 per cent for two years with Newcastle Building Society.
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Sean Gardner, MoneyExpert.comís Chief Executive, said: ìHomeowners who were smart enough to fix their rates in 2003 canít take their good fortune for granted. Interest rates are rising and standard mortgage rates are too. If they donít keep their wits about them theyíll feel the pinch where it hurts ñ in their back pockets.
ìThe mortgage market is different from three years ago, but thatís not to say that there arenít great deals to be had. Savvy homeowners can keep a low rate if they do a bit of homework and review the market. Even taking into account application fees, switching from a high default standard rate to another fixed rate deal will make a big difference.”
Around 39 per cent of mortgages taken out in 2003 were in fixed-rate deals amounting to 1,059,000 loans. Popularity of fixed-rates has never been stronger, with over 1.3 million deals struck last year.
MoneyExpert.com is hosting a Defaqto guide to mortgages on its website aimed at helping customers understand home loans. It is available at www.moneyexpert.com. Not only does it offer very useful information on how to get the best mortgage but it also includes tips on how to navigate through the potential pitfalls found in the small print.
Click here to read the defaqto mortgage guide
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* Source: Council of Mortgage Lenders