Independent financial service Moneyfacts says first time buyers who opt for a fixed rate deal might be better off if they chose a discounted variable rate deal.
Moneyfacts says the current average fixed rate at 95 per cent loan-to-value is 0.82 per cent more expensive than the current average discounted variable rate.
Spokeswoman Charlotte Nelson says fixed rates for first time buyers are going up, with the average two-year fixed rate at 95% LTV well above last year’s figure.
“In contrast, the average rate for discounted variable deals is still falling, and while the difference between the two rates was already clear to see in previous months, it has now risen to a whopping 0.82 per cent” she says.
Nelson advises that borrowers opting for the average two-year discounted variable rate at 95 per cent LTV instead of the average two-year fixed rate will be £89.25 a month or £1,071 a year better off.
Her figures are based on a £200,000 mortgage over a 25 year term on a repayment-only basis.
“Discounted variable rates generally offer a discount on the lender’s Standard Variable Rate and due to this link, there is the potential for rates to rise if base rate rises. However, given the current difference between the two averages, FTBs could still find themselves better off even if base rate were to increase by 0.50 per cent”.
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