The Council of Mortgage Lenders released the results of their research this week that suggests staying on a standard variable mortgage, more commonly referred to as fixed mortgages, is actually a huge risk.
The news is surprising given the fact that for most of modern history a fixed mortgage has been considered to be a more secure mortgage product when compared to tracker or variable mortgages that are based on the change in the interest rate. A new survey by Which? took a closer look at the debate and revealed who should stay on a SVR and who would benefit from switching.
Figures from the CML estimate that about 1.8m of the current owners of fixed mortgages chose to stay on their lender’s SVR’s ,and on average most of these people are paying about £2,600 less than they were when they were still paying their fixed amount. Out of those included in the large figure, the CML is also estimating that more than half have over 10% of equity in their property allowing them to choose to remortgage their property if they wished to do so which means they do not have to stay on SVR’s.
However, despite the fact that many people could switch to the low mortgage rates that are available right now, it seems that most people are weary about signing into any type of contract and most people are choosing to wait and see just what happens. Experts themselves seem baffled as they keep warning of the impending Bank of England base rate hike that has yet to occur and that eventually mortgages will reach rock bottom and start to inch back up.
In fact, this week it seems that the rates may be starting to inch up, but it generally must occur for more than three weeks before an increase is marked as a trend. Which? however took a closer look at the mortgage market and found that most people would struggle to meet their SVR payments if the base rate were to increase by just a small amount.
According to research from Which? if there was an increase of £50 or more every month on mortgage payments, about 75% of all mortgage holders would suffer from the increase. Out of these, 37% would most likely need to trim their regular spending while another 20% would have to decrease the amount they save each month and an additional 9% would find that they could no longer afford essentials.