Your Move’s May Remortgage Index, that tracks first year savings achieved from switching from a £100,000 standard-variable rate (presently averaging 6.59%), to the Best Buy1 rate in different classes, shows a dramatic increase in the attractiveness of fixed rate mortgages.
Highlights:
- Fixed rates fall in absolute and relative terms
- Savings rise on fixed rates
- Savings fall on discounted variable rates
- Higher exit fees see lenders take an extra bite from borrowers
Fixed rates
- Fixed rates are now markedly lower than they were a year ago, both in absolute terms and relative to the SVR and discounted variable rates. A year ago the Best Buy1 five year fixed rate was 5.59%. This has now fallen a dramatic 0.9% to 4.69%. Two and three year fixed rates have come down sharply too. Over this time period, the average SVR has actually risen 0.42% from 6.17% to 6.59%, while base rates have risen 0.5% to 4.75%
- First year savings achieved by switching to the Best Buy1 five year fixed rate mortgage are now £1370, up 6.2% from a month ago (20/04/05 - £1290), and up a staggering 5.5 times (or 448%) from 12 months ago (£250), see Table 2, and this is despite a significant increase in fees.
Five year fixed rates drop below five year discounted rates
- For the first time the latest Best Buy1 five year fixed rate is actually now lower than the five year discounted variable rate and is the same as the three year fixed rate. This reflects trends in fixed income markets which Jon Round, remortgage analyst at Your Move explains below.
Discounted variable rates – savings fall:
- While fixed rates have fallen sharply over the last year, discounted variable rates have actually risen steadily, although slightly more slowly than the average SVR. This reflects the fact the base rates have risen 0.5% since June last year.
- First year savings on discounted variable rates have fallen over the last month. Savings nevertheless remain high and owing to slightly lower fees, are still slightly greater than for fixed rate deals. However, over the full five year term of the mortgage, savings are however higher for the five year fixed rate compared to the discounted variable rate; £10889 compared to £10,655.
Exit Fees
Over the last few months, exit fees have been increasing with a number of major lenders raising fees to over £200. The average exit fee for the main lenders is now £167.
Jon Round, Remortgage Analyst at Your Move explains: ‘There has been a dramatic turnaround in the mortgage market in recent months. A year ago fixed rates climbed rapidly as fears over inflation led the money markets to push up their expectations for where base rates would go. This has reversed in spectacular style and there is no sign that the Bank of England is going to increase rates any time soon. This change has brought fixed rates down rapidly, even below the level of discounted variable rates. Only those remortgagers who are certain that interest rates are going to fall from here, and stay low, are likely to be considering discounted variable rate deals at present. This is an extremely good time to be remortgaging.
One note of caution though. Watch out for exit fees. Lenders have been pushing these higher and higher lately and they can significantly increase the costs of remortgaging, especially for shorter length deals. We welcome the FSA’s plans to investigate this area as lenders are moving the goal posts for borrowers by raising fees at will
