Although a fixed rate mortgage product is often the preferred choice for borrowers, research suggests that a discounted variable mortgage could be the cheaper option for many.
The study, which was conducted by Moneyfacts, the data site, reveals that some first-time buyers may benefit from a discounted variable rate deal. This product offers a discount on the standard variable rate offered by the lender. According to Moneyfacts, a lender who has a 95% Loan To Value mortgage, with a discounted variable rate over two years, would save £1,071 a year or £89.25 a month in comparison to if they had taken out a two-year fixed rate deal.
According to a finance expert at Moneyfacts, Charlotte Nelson, first time buyers often favour a fixed rate deal as they are easier for budgeting purposes and simpler to understand. However, Nelson warns that as fixed rate products for those with a LTV of 95% are increasing, it would be a costly mistake to ignore other available products. The expert added that fixed rate deals for first-time buyers are rising, whereas discounted variable deals are falling, creating a difference between the two of 0.82%.
Nelson warned that there were risks attached to a discounted variable deal, as if the lenders SVR rises, so will the mortgage repayments. However, as fixed rate deals are significantly higher than discounted variable deals, even a rise of 0.5% to the base rate would still make it cheaper for borrowers. As with all deals, it is advisable to speak to a mortgage advisor, who has studied on a CeMAP course and gained the relevant knowledge of the different mortgage types.