Mortgage rates are increasing, and borrowers should consider switching to save an average of £1,240 a year.
That’s according to regulator the Financial Conduct Authority (FCA), which published a ‘Switching in the Mortgage Market’ update.
As mortgage rates are increasing, according to the FCA, around 370,000 mortgage borrowers, representing 4% of the market, could make a saving by switching to a two-year fixed rate deal with their existing mortgage lender.
They say that the number of mortgage borrowers choosing not to switch their mortgage deals, despite being able to save money by doing so, has fallen significantly since 2016.
The FCA said:
“We do not see the same poor pricing practices that used to be prevalent in the general insurance markets, where pricing was opaque and loyal customers could face dramatic price increases over time as a result of price walking.”
However, many mortgage borrowers have recently enjoyed relatively low interest rates, whether on fixed or variable rate deals. As the Bank of England rate rises, most borrowers will face higher mortgage costs.
Therefore, as mortgage rates are increasing, the FCA wants borrowers to consider their options and switch deals if they can if doing so meets their borrowing needs and saves money.
The FCA data shows that around 150,000 borrowers would save more than £1,000 a year for two years, with a further 110,000 borrowers saving more than £500 a year.
According to Moneyfacts, a typical two-year fixed rate mortgage was 2.52% in August 2021 but has now risen to 3.95%.
An average five-year product is now 4.08% up from 2.75% a year ago and with the Bank of England expected to raise rates further over the coming year, there may be some merit in reviewing your existing product, even if there is a penalty to pay to exit, before it expires, to get yourself a competitive rate going forward.
The latest regulatory analysis of the mortgage market, covering the second half of last year, shows that 74% of mortgages are on fixed rate deals, typically between two and five years.
Around half of those fixed rate mortgage deals are set to expire during the next two years, with 37% of mortgage borrowers exposed to higher costs at that time.
For the 2.2 million borrowers with variable rate mortgages, around 26% of borrowers, around half have discounted variable rate or tracker rates, and half are on revision rates.
For borrowers on reversion rates, not all can switch to a better deal or would save any money by doing so. Therefore, borrowers should speak to an Independent Mortgage broker to determine if changing mortgage deals was the right thing to do.