End of fixed deals benefits 100,000 homeowners

Around 100,000 homeowners a month are seeing their mortgage repayments drop as they come to the end of fixed-rate deals, research showed today.

The Council of Mortgage Lenders estimates that around 100,000 people each month are reverting to their lenders' standard variable rate (SVR), the majority of which are far lower than the rate they had previously been paying.

The group's figures show that someone who took out a fixed rate mortgage two years ago paid an average rate of 5.7 per cent, while those on a five-year deal are likely to have been paying around 5.3 per cent.

But lenders are currently charging an average of just 3.9 per cent to people who go on to their standard variable rate at the end of a deal, while major lenders Nationwide and Lloyds TSB, including Cheltenham & Gloucester, have SVRs of just 2.5 per cent.

The drop in rates from a two-year fixed rate deal to the average SVR would save someone with a typical £150,000 mortgage around £158 a month, or nearly £1,900 a year.

Even bigger savings could be made if these people remortgaged on to one of the current best buy deals, such as HSBC's 1.99 per cent discount mortgage, which would reduce their repayments by £317 a month.

But other borrowers coming to the end of existing mortgage deals are facing a steep hike in their monthly repayments.

Mortgage broker John Charcol estimates that between the beginning of September and the end of this year around 100,000 people will come off tracker mortgages under which they have been paying interest of just 0.01 per cent for several months.

Many of these borrowers took out Halifax's two-year tracker at a rate of 0.51 per cent below the base rate, while others were on Cheltenham & Gloucester's tracker offering 1.01 per cent below the base rate.

These borrowers have been paying a nominal rate of just 0.01 per cent since the base rate fell to a record low of 0.5 per cent, with the sum refunded to customers on a monthly basis.

But those who took out the Halifax deal are due to revert to an SVR of 3.5 per cent when their tracker ends, while the 1,500 customers on the C&G deal one will pay interest of 2.5 per cent when their deal expires.

However, the majority of people who took out one of these loans are expected to be able to manage the hike in repayments they will face.

Ray Boulger, senior technical manager at John Charcol, said: "For most people it shouldn't be a problem.

"The rate they revert to is going to be lower than the rate they started paying in the first place."

He added that for people who were on repayment mortgages the increase would be less dramatic as a proportion of their overall costs.