Falling mortgage rates means borrowers who fixed their mortgage just six months ago, after the Budget turmoil, could save money by switching again.
Research by Dashly suggests that even with early repayment charges, some homeowners could be more than £200 better off a month by taking advantage of current deals on the market.
Its analysis, which compares the cost of fixed rate mortgages over the past six months, shows that average homeowner would be £68 a month better off by switching, while those in London or in higher-value homes could be up to £234 a month better off.
Dashly says that when interest rates initially went up last year, many homeowners locked into fixed rates as they were concerned about future increases. But this has not happened, despite subsequent base rate rises. With fixed-rate levelling out Dashly says many homeowners could be better off paying the ERC and switching.
It gives the example of a homeowner in a property valued at £291,000 — the average price of a UK home — where homeowners took out a three year fix at 6.24% in December 2022. They could now move to a 3.99% rate (on a five-year fix) saving £68 on monthly repayments. This would entail a possibly ERC of £1,674, meaning it would take 12 months to start seeing this benefit. But Dashly says homeowners would be £1,161 better off over the remaining term of their initial rate period.
On the average London property, with a value of £566,000, homeowners could save £234 a month, assuming they switched from a 5.52% rate (available in November 2022) to a 4.33% rate today. Again this would entail a ERC in the region of £4,465, but Dashly says this would mean savings of £3421 over the remaining term.
Dashly chief commercial officer Martin Leonard says: “Dashly data shows that despite the interest rate rises, lending rates are now relatively stable at 5.13% for a two-year fix and 4.80% for a five-year fixed rate.”
He adds: “There has been so much economic uncertainty over the last six months that it has been difficult for homeowners to know when to buy or remortgage. By tracking the data, we believe that despite the turmoil, borrowing rates have now peaked and we do not expect these to increase.”
He adds that lenders 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.
Dashly is also seeing lenders differentiating themselves in the market in a bid to win new customers. Lenders such as NatWest allow you to take a tracker but opt in to a fixed at any point with no fees payable. Virgin Money also have a ‘switching’ policy where customers can opt to take a new rate when their deal is six months in, allowing the borrower to switch to a cheaper deal if one becomes available prior to the term expiring.