Time to Fix Large Mortgages as Gap between Fixed and Variable Deals Grows

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For those taking high value loans on your lender’s Standard Variable Rate (SVR) now could be the time to take advantage of a deal to fix large mortgages. That’s the view of a leading expert as new research into the UK’s large mortgage market reveals that the gap between the average fixed rate and the average SVR continues to grow.

As the housing market continues to get stronger, the likelihood of interest rate rises.

Gap between fixed and variable rates grows

New data from the Bank of England has revealed an increase in the gap between SVRs and fixed rates. Since the start of 2013, the average rates on a two-year fixed rate mortgage with 25 per cent equity or deposit have fallen by 0.63 percentage points to 2.48 per cent. Five-year fixed rates have fallen by 0.34 percentage points over the same period from 3.71 per cent to 3.37 per cent.

However, standard variable rates (SVRs) have fallen by just 0.02 percentage points to 4.36 per cent.

Mortgage experts believe that this increasing gap between the costs of variable and fixed rates should encourage more high value mortgage borrowers to switch to a fixed deal – and there are some great rates still available.

Last year, a number of banks including Santander and Co-operative increased their Standard Variable Rates and one lender, Holmesdale, recently increased its SVR by 0.1 percentage points to 4.99 per cent.

The Financial Times reports that the Financial Conduct Authority recently wrote to banks to warn them that they had to treat customers properly when considering further changes. “We recognise that mortgage lenders may want to vary their SVRs or other terms in their contracts, but we are concerned that the factors driving changes to SVRs may not always be transparent to consumers,” said the letter.

Islay Robinson, CEO of London mortgage broker and million pound mortgage specialist Enness Private Clients, said: “At the start of the year the gap between the average SVR and the average 75 per cent loan to value two year fixed rate was 1.27 per cent. Now, the gap has increased to 1.88 per cent.

“With SVRs only likely to rise when interest rates start to creep up it seems to make sense to commit to a fixed rate now.”

Could it pay to delay remortgaging until the value of your home rises?

Many lenders continue to offer high value mortgage deals at below 2 per cent. Two year fixed rates begin at 1.48 per cent although eligibility for the very best deals is restricted to smaller mortgages at 60 per cent lending.

However, despite some great deals the level of remortgaging activity remains low. Mr Robinson, the high value mortgage expert, said: “Until house prices start to rise, many borrowers simply don’t have enough equity to remortgage.

“While the gap between fixed and variable rates suggests now is the time to fix, the better deals are still available at lower loan to values. So, there is a counter argument for waiting until the value of your property has increased and holding out for a better deal.”