You are here: Home - Mortgages - First Time Buyer - News -

Discounted variable rate could be cheaper than fixed mortgage deal

0
Written by: Paloma Kubiak
29/08/2017
Fixed rate mortgage deals are often considered simpler and cheaper but they could work out more expensive than discounted variable rate deals, research suggests.

The average two-year fixed rate at 95% loan-to-value (LTV) is 0.82% more expensive than the current average two-year discounted variable rate of 3.34%.

The research, compiled by data site Moneyfacts, revealed that first-time buyers may be significantly better off if they opt for this product, which offers a discount on the lender’s standard variable rate.

In fact, Moneyfacts said borrowers opting for the average two-year discounted variable rate at 95% LTV instead of the average two-year fixed rate would be £89.25 a month or £1,071 a year better off.

The table below shows the average rates at 95% LTV over the past year, six months and now:

Average Rates at 95% LTV A Year Ago 6 Months Ago Today
Two-year Discounted Variable Rate 3.41% 3.51% 3.34%
Two-year Fixed Rate 4.03% 3.92% 4.16%
Difference -0.62% -0.41% -0.82%

Source: moneyfacts.co.uk

Charlotte Nelson, finance expert at Moneyfacts, said many first-time buyers tend to stick to fixed rates as they’re the simplest to understand, and because they’re usually a great way to manage money. However, she warns that as fixed rates for those at 95% LTV are on the rise, ignoring other options can be a costly mistake.

She said: “Fixed rates for first-time buyers are going up, with the average two-year fixed rate at 95% LTV well above last year’s figure. In contrast, the average rate for discounted variable deals is still falling, and while the difference between the two rates was already clear to see in previous months, it has now risen to a whopping 0.82%.”

Nelson explained that discounted variable rates generally offer a discount on the lender’s Standard Variable Rate and due to this link, there is the potential for rates to rise if base rate rises.

However, she said given the current difference between the two averages, first-time buyers could find themselves better off even if base rate were to increase by 0.50%.

“It can be a difficult process, puzzling through the mortgage maze when you are new to the process, which is why any prospective first-time buyer unsure of what deal to opt for should seek advice from a financial adviser.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Flight cancelled or delayed? Your rights explained

With no sign of the problems in UK aviation easing over the peak summer period, many will worry whether holida...

Rail strikes: Your travel and refund rights

Thousands of railway workers will strike across three days this week, grinding much of the transport system to...

How your monthly bills could rise as the base rate reaches 1.25%

The Bank of England has raised the base rate to 1.25% as predicted – the fifth consecutive rise in just six ...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week