LONDON, UNITED KINGDOM--(Marketwire - Feb 28, 2013) - Analysis by HSBC has calculated the financial impact to borrowers from four years of the record low 0.5% base rate since 4th March 2009.
Fixed vs. Tracker Mortgage Borrowers
Borrowers who opted for a fixed rate mortgage since March 2009 would collectively be at least £3.2bn1 worse off per year than if they had taken out a tracker rate as the base rate plummeted. Those who took out a five year fix in 2007 when the average rate was 5.83% have lost out the most. The average mortgage customer would have paid £9,408 more in interest over the five year period than if they had taken out a tracker mortgage, average rates for which had fallen to 2.75% by 2011.
On the other hand, borrowers opting for a tracker mortgage have benefitted from the low base rate environment over the past four years, with 826,500 borrowers having collectively saved at least £1.26bn2 a year compared to fixed rate mortgage costs, an average saving of £1,510 in interest per mortgage per year. The average difference in rates is 1.46%, with the average tracker rate at 2.86% and the average fixed rate at 4.32%.
Those borrowers who reverted onto the capped SVRs on offer from some lenders have also benefitted, from record low rates, with some paying as little as 2.5% for the remaining term on their loan. 3
Low LTV vs. High LTV Mortgage Borrowers
Mortgage borrowers who have been able to take advantage of a low LTV rate (<75%) have paid a collective £4.2bn4 a year less in interest since the base rate fell to 0.5% in March 2009 compared to rates available to those with a higher LTV (>85%). For a two year mortgage on the average property, this is an annual interest saving of £1,012 per mortgage.
Low LTV rates have been 1.63% lower on average than higher LTVs ones. More than two million borrowers have benefitted from the average low LTV rate of 3.25%. The gap between high and low LTV deals was at its widest during 2012, with a 2.01% rate gap, meaning low LTV holders saved a total of £474m 5 interest in that twelve months alone.
The average rate difference between tracker and fixed deals over the four year period has been 1.47%, with the average tracker rate at 2.89%, and the average fixed rate at 4.36%.
In addition, 839,000 mortgage borrowers currently have insufficient equity to move onto a better deal. Falling house prices in some areas mean these "mortgage prisoners" have seen the equity in their property decline, meaning they have missed out on the lower rates available during the low base rate years.6
Regional House Price Divide
Homeowners in the south have seen the biggest gain since the base rate moved to 0.5%, with property values rising in every borough of the South East, London and East of England and all but two areas in the South West (Torbay and Cornwall) over the past four years. There are 13.2 million households in areas where house prices have risen.7
|The top 5 winners overall are all in Central London:|
|Kensington and Chelsea (+£379,368/54%)|
|City of Westminster (+£233,623/43%)|
|Hammersmith and Fulham (+£147,225/34%)|
|The top 5 winners outside of London are all in the South East:|
|Brighton and Hove (£37,860/20%)|
|Windsor and Maidenhead (£33,487/11%)|
|The top 5 ''losers'' in terms of property value have been:|
|Redcar and Cleveland (-£20,989/-17.75%)|
|Pembrokeshire (-£20,798/ -13.50%)|
Peter Dockar, Head of Mortgages at HSBC commented:
"The low base rate period has been a tough economic environment, but borrowers have benefitted substantially over the last four years. Some of these winners have gained from already owning property in the right area, or already having sizeable equity in their home which has given them access to low LTV mortgage rates.
"With mortgage rates now at record lows, now is the time for borrowers to review their finances as many may be able to make significant savings by accessing competitive deals on their home loans."
HSBC Bank plc: HSBC serves 16.1 million customers in the UK and employs approximately 52,000 people. In the UK, HSBC offers a complete range of personal, premier and private banking services including bank accounts and mortgages. It also provides commercial banking for small to medium businesses and corporate and institutional banking services. HSBC Bank plc is a wholly owned subsidiary of HSBC Holdings plc.
The HSBC Group: HSBC Holdings plc, the parent company of the HSBC Group, is headquartered in London. The Group serves customers worldwide from around 7,500 offices in over 80 countries and territories in Europe, the Asia-Pacific region, North and Latin America, and the Middle East and Africa. With assets of US$2,556bn at 31 December 2011, HSBC is one of the world''s largest banking and financial services organisations.