With interest rates set to rise, the time is right to lock in the best mortgage deal

THOUSANDS of Scots are overpaying for their mortgages and by the end of this month many more will have joined them.With £35 billion of cut-price fixed

THOUSANDS of Scots are overpaying for their mortgages and by the end of this month many more will have joined them.

With £35 billion of cut-price fixed-rate deals running out in September and October, this autumn is set to be the busiest home loan maturity period for five years.

Those who do nothing will be transferred onto their lender’s often far-higher standard variable rate (SVR) of interest and, as a result, their monthly repayments are likely to soar.

Many homeowners simply are not aware of how much they could save by seeking out a competitive new loan.

Gillian Guy, chief executive of consumer charity Citizens Advice, said: “More than a million loyal mortgage customers are being stung with higher interest charges when their fixed deals end. But two-thirds of borrowers say their lender has never told them they could save money by switching.”

According to the charity, just over half of those with expired deals wrongly believe they are paying the same as or less than newer customers.

Yet when it looked at the difference between leading lenders’ SVRs and their two-year fixed-rate prices, it found someone with a £60,000 loan could be wasting anything from £186 a year with Lloyds to £702 with Nationwide Building Society.

Tesco Bank paints an even gloomier picture. It calculates that up to 2.5 million UK homebuyers could already be paying too much for their mortgages.

Although the Bank of England’s base lending rate has stood at just 0.25 per cent for over a year and has not been above 0.5 per cent since early 2009, standard variable rates – which, as their name suggests, can be raised at any time – are considerably higher.

The typical figure is currently 4.39 per cent, compared to an average two-year fixed deal of 1.95 per cent, and Tesco said this means the worst-hit customers could be overpaying by as much as £274 a month or £3,288 a year.

There are wide variations between SVRs and some lenders charge more than one rate depending on how long customers have been with them. But this information is frequently buried deep within their websites.

Nationwide Building Society charges borrowers who took out their loans after spring 2009 an SVR of 3.74 per cent, while older customers pay 2.25 per cent.

Lloyds, Halifax and Bank of Scotland also charge a variable rate of 3.74 per cent but apply a different SVR to some older loans. HSBC charges 3.69 per cent, Barclays 3.7 per cent and Royal Bank and NatWest 3.75 per cent.

Santander at 4.49 per cent, Virgin Money at 4.54 per cent, and Clydesdale at 4.7 per cent have some of the highest SVRs.

These rates look set to rise still further. After warnings from the Bank of England that an increase in its base lending rate is imminent, experts predict it could change as early as next month.

Financial consultancy Capital Economics believes the Bank’s base rate will be 1.75 per cent by 2020, meaning mortgage rates could rise steeply.

Some mortgage holders have already taken action. John Bagshaw, corporate services director of Connells Survey and Valuation, said: “Having benefited from a decade of low interest rates, consumers are sensing the risk that this era is nearing an end.

“With so much economic uncertainty and hints of a base rate rise, many are choosing to lock into a lower rate to see them through the next few years.”

Coventry Building Society has a variable rate remortgage deal at 1.55 per cent interest for the entire loan term with an arrangement fee of £999. The maximum loan to property value (LTV) is 75 per cent and there are no early repayment penalties.

There are also a wide range of two to five-year fixes charging less than 2 per cent. First Direct, for example, has a two-year fix at 1.34 per cent with a £725 booking fee and 75 per cent maximum LTV, while HSBC has a five-year fix at 1.74 per cent with a £999 fee and the same LTV. Early repayment charges apply to both during the fixed period.

For those seeking longer-term certainly, Nationwide is offering a ten-year fix at 3.09 per cent with a £999 fee, a maximum LTV of 75 per cent and early repayment penalties for the fixed period.

Anyone who is confident about dealing with their finances can find hundreds of fixed-rate and discounted deals to choose from on price comparison websites. Those who would like help to decide should consult an independent mortgage broker.

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