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Mortgage holders who fixed six months ago could save £234 a month by switching now

Written by: Anna Sagar
Homeowners who took out fixed rate mortgages six months ago could save up to £234 a month by switching deals now, research has found.

According to mortgage data experts Dashly, homeowners who locked in a deal six months ago could be up to £234 a month better off by moving to a new deal, even if they paid early repayment charges (ERC).

Based on the average UK house price of £291,000, a homeowner with a Nationwide mortgage taken out in December with a rate of 6.24% could now take out a deal at 3.99%. This would save up to £68 on their monthly mortgage payments, even with an ERC of £1,674.

The company said that, while it would take up to a year to “start reaping the rewards”, homeowners could be £1,161 better off over their remaining term of their current initial period by switching deals.

Another example is based on the average London house price of £566,000. A homeowner with a Barclays mortgage taken out in November at a rate of 5.52% could move to a rate of 4.33%. This could lead to a saving of £234 a month on their mortgage payments, in spite of an ERC of £4,465.

Dashly said that this could save £3,421 over the remaining term of their current initial rate period if borrowers switched to a new deal.

‘Borrowing rates have peaked’

Martin Leonard, chief commercial officer at Dashly, said: “We know that many are feeling the financial pressure right now, and anything they can do to reduce their monthly mortgage payments is a much needed and welcome reprieve.

“Mortgage payments are normally the highest monthly outgoing for any household and even just a slight increase in borrowing rate can have a significant impact.”

He explained that many who switched mortgages around six months ago could have experienced increased anywhere between 2% and 4% on their borrowing rates.

“With inflation and widespread wage stagnation, this is a big jump,” Leonard said.

However, data from Dashly shows that lending rates are now “relatively stable” and averaging 5.13% for a two-year fixed rate and 5.05% for a two-year variable. Five-year fixed rates stand at 4.80%.

Leonard said that heightened economic uncertainty over the last six months had made it difficult for homeowners to know when to buy or remortgage, however by tracking the data it believed that “borrowing rates have now peaked and we do not expect these to increase”.

Lenders setting themselves apart

Leonard continued: “Lenders need to lend and have been factoring possible increases into their pricing for a few months now which means that even if the interest rate rises again, borrowing rates are likely to remain stable.”

Leonard noted that lenders were also differentiating themselves in the market to win new customers. This included changes like Natwest allowing borrowing to take a tracker and then switch to a fixed rate with no fee, Virgin Money allowing borrowers to take a new rate when their deal is six months in so they can select a cheaper deal prior to their term expiring.

“With fewer buyers in the market, lenders need to find innovative ways to entice customers in. We’re seeing much more competition in the market and expect to see more initiatives like these coming through,” he added.

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