Mortgage rates: THIS is why the two-year fixed rate is the most popular deal
MORTGAGE rates have climbed in recent months and two-year fixed rates are proving the most popular.
The Bank of England’s latest official data reveals rates have climbed over two months to the end of June. According to The Telegraph, of all the mortgage deals, two-year fixed rate loans are the most popular. This is where the borrower is given a set rate for the first two years and after that period there is a follow-on rate which is usually variable and referred to the lender’s “Standard Variable Rate”. Richard Dyson for The Telegraph explains: “Two-year fixed rates, like all mortgage rates, depend on the size of the deposit the borrower puts down – or the existing equity in their property if they are re-mortgaging without moving home.
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Mortgage rates: A two-year fixed rate is the most popular deal
The Bank of England’s latest official data reveals rates have climbed over two months to the end of June.
“Smaller deposits result in higher rates, as the risk to the lender is greater.”Richard further revealed with a small 10pc deposit, two-year rates were at 2.43pc in April but have now climbed back up at 2.5pc.With a 40pc deposit, two-year rates were at 1.24pc in April and are now up at 1.38pc.
However, new research revealed that loyal mortgage customers who do not remortgage after their fixed term deal can pay an extra £400 a year.
The penalty affects people who are rolled onto their bank’s standard variable interest rate at the end of a fixed term mortgage deal.
Mortgage rates have climbed over two months to the end of June
The research, carried out by Citizens Advice, found that people who remain on the standard rate after a two year fixed term mortgage deal face an average loyalty penalty of £439 a year.The charity further calculated that 1.2 million people would be better off if they switched to a new deal – with one in 10 paying over £1,000 a year extra by staying on the standard variable rate.First time buyers, who typically have more debt and more time left on their mortgage, face paying an extra £1,359 a year once their two year fixed deal expires.
The national charity also revealed older and poorer mortgage holders are more likely to be hit by a loyalty penalty.
Mortgage rates: “Smaller deposits result in higher rates, as the risk to the lender is greater”
Citizens Advice Chief Executive, Gillian Guy, said: “More than a million loyal mortgage customers are being stung with higher interest charges when their fixed deals end.“Buying a home is a major life decision and borrowers taking out their first mortgage often spend a great deal of time working out the best option for them.“Our research shows that many who choose fixed rate mortgage deals face steep price hikes once they expire. But two thirds of borrowers say their lender has never told them they could save money by switching.
“Lenders must be more upfront and provide their customers with clear information about what could happen to the cost of their loan once the fixed term period ends.”