Around 1.8 million households in the UK saved approximately £2,600 per year by reverting to their lender’s standard deal after the expiration of their original fixed-term loan, according to the Council of Mortgage Lenders (CML).
The amount of savings is unusual, as lenders’ standard variable rates (SVRs) are traditionally higher than fixed rates. However, since SVRs are linked to the Bank of England’s (BoE) base rate, costs have fallen significantly after the financial crisis.
BoE said C&G and Nationwide offer SVRs of 2.5 percent, up two percentage points from the basic rate.
The CML said the potential “payment shock” raised by economists may not be realised, as the current rates are expected to climb by up to 0.9 percent by the end of 2012 and two percent by the end of 2014.
“The CML estimates that 85 percent of borrowers who have reverted to variable rates would still be paying less than their original mortgage payment by the end of 2012, and around 58 percent would still be paying less than their original payment throughout 2014.”
However, it cautioned that the “payment shock” risk will apply to the 1.5 million borrowers whose fixed-rate deals expire in the next 24 months.
“Many of the loans that are due to mature in the coming years were initially advanced in 2009 and 2010 when mortgage rates had already fallen from the 2008 peak.”
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