Nationwide has revealed that this will add a huge £200 per month onto borrowers’ mortgage repayments as they default onto their lender’s standard variable rate (SVR)
Two years ago, in Autumn 2005, fixed rates dipped to a low point, with an average rate for a two-year deal being just 4.56%. If borrowers on these low rates don't take any action when their deal
matures, they will automatically move onto a standard variable rate mortgage, with a current average rate of around 7.75% - leading to a rate increase of over 3%.
Even if these 'rate shocked' borrowers remortgage to another two-year fixed rate deal or try to secure a rate for a longer period, they are still likely to experience an increase in payments. Since
Autumn 2005, the average two-year fixed rate has risen by over 1.80% from 4.56% to around 6.41%. On a £100,000 mortgage, this increase would cost customers an additional £110 per month.
In order to keep monthly repayments as low as possible, borrowers need to choose their mortgage carefully. Borrowers can often save money by switching to a new mortgage before their current deal ends, however many believe that to avoid early repayment charges they must wait until their deal expires before arranging a new fixed rate.
Matthew Carter, Nationwide's director of mortgages, said: "For some borrowers it will come as a quite a fright to see their mortgage payments increase dramatically. To absorb some of this shock, borrowers need to consider remortgaging as soon as their deal ends, or beforehand if their lender allows it.
“Those who prefer to avoid the unexpected may be thinking about fixing for a longer period. Since the Bank of England base rate has been rising we have seen a great deal of interest in our longer term deals, including our 25 year fixed rate deal."
