Standard Variable Rate differential to fixed is widening

Moneyfacts UK Mortgage Trends Treasury Report reveals that the average two-year fixed rate in July 2017 was 2.26% and the current average standard variable rate (SVR), is currently 4.90%. These figures mean that this month, the average difference between the rates that existing borrowers have been paying on their maturing two-year fixed deals and the SVR that they will most likely revert to stands at 2.64%.

Indeed, the increase between the average maturing two-year fixed rate and the average SVR it will revert to is growing and has widened by 0.05% since May (2.59%), including a 0.04% rise in the past month alone (June: 2.60%). This gap is likely to increase further still, as the record-low deals that borrowers locked into in the summer of 2017 mature.

Darren Cook, Finance Expert at Moneyfacts, said:

“Two years ago, interest rates on fixed deals were starting to decrease, with the average two-year fixed mortgage rate falling from 2.31% in January 2017 to its historical low of 2.20% in October 2017. Borrowers who took advantage of these low rates in July 2017 may now be reverting to a follow-on rate, which is now at an average of 4.90%, resulting in an increase of 2.64% when the initial fixed term expires.

“Despite the average provider SVR remaining static over the past couple of months, the fall in average two-year fixed rate mortgage rate between May and July 2017 has meant the gap between the average maturing two-year fixed deal and the revert to rate has increased. Moreover, the jump between the two rates is likely to increase further still in the coming months if the average SVR continues to remain fairly static, as the average two-year fixed rate in 2017 continued to fall.

“The increasing gap between the average maturing two-year fixed rates and the current average SVR will likely result in affected borrowers looking to remortgage to a better deal sooner rather than later. The average two-year fixed rate currently stands at 2.49%, so although rates may be a little higher than they were two years ago, this average rate is nearly half of what the current SVR is at 4.90%, meaning borrowers will still save significant sums in interest if they decide to remortgage instead of reverting to their provider’s SVR.

“The increasing gap between the average maturing two-year fixed rates and the current average SVR will likely result in affected borrowers looking to remortgage to a better deal sooner rather than later. The average two-year fixed rate currently stands at 2.49%, so although rates may be a little higher than they were two years ago, this average rate is nearly half of what the current SVR is at 4.90%, meaning borrowers will still save significant sums in interest if they decide to remortgage instead of reverting to their provider’s SVR”.

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