Most borrowers who have come off fixed rate deals are reaping a windfall they could never have foreseen. They are now paying far less than they were on their original mortgage. On average, they are £2,600 a year better off than they were under their fixed rate deal.
Research by the Council of Mortgage Lenders comes as the housing minister, Grant Shapps, has made a call for more 30-year fixes to be made available.
But the CML research reveals that around 1.8million mortgage holders whose fixed rate deals have come to an end are currently on their lender’s reversionary variable rate, to the benefit of the majority.
According to the CML’s market and data analyst Caroline Purdey, author of the new research, over half of those now on reverted variable rates have more than 10% equity and could potentially remortgage if they wished to.
Markets currently expect Bank base rate to rise from its current 0.5% to around 0.9% by the end of 2012 and 2% by the end of 2014. Under this scenario, the CML estimates that 85% of those 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% would still be paying less than their original payment throughout 2014.
CML director general Paul Smee said: “Most households appear to be able to absorb anticipated interest rate rises over the next few years without seeing the cost of their monthly mortgage payment rise above its original level.
“Many households have seen a significant windfall from reverting on to variable rates over the past few years, although this will be less true for those coming off short-term fixed rates in the near future.
“The choice of whether or not to fix, and for how long, involves taking a view about the likely direction of future interest rates, along with a personal consideration of how much rate risk is acceptable to a household.
“Given the economic uncertainty, it is not surprising that for the time being many of those who have reverted on to variable rates and could remortgage are choosing to wait before they decide what to do next.”
The research comes as housing minister Grant Shapps called on lenders to offer more long-term fixed rate mortgages – up to 30 years – to the market.
The CML responded by saying it will be keeping the issue of long-term fixed rates under review.
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