Research reveals few home owners really understand mortgage rates

Just one in four home owners in the UK with a mortgage understand how cuts to the Bank of England’s base rate could affect their mortgage payments, according to new research.

In August the Bank of England made the first adjustment to the rate in over seven years, cutting it from 0.5% to 0.25% and mortgage rates soon fell as a result. Tracker rates dropped by 0.25% while fixed rates also hit record lows, with two year fixed rates available for as little as 1.39%.

However lender Standard Variable Rates (SVRs), the default rates that borrowers often find themselves on as soon as an initial rate has ended, did not drop nearly as far. The average SVR before August’s base rate change was 4.8%, but by November had fallen only 0.17% to 4.63%.

As a result of the widening gap between the best and worst rates on the market, people stuck on expensive SVRs could now save a further £380 per year by switching to a market leading fixed rate, according to research by online broker Trussle. What had been an average annual saving of £3,120 has grown to £3,500, as a result of August’s base rate cut, it points out.

The research found that while 27% of mortgage borrowers knew how a cut to the base rate would affect their own mortgage payments, there was a huge disparity between male and female borrowers. Some 35% of men claimed to understand the relationship, compared to just 19% of women.

This gender divide was also apparent when respondents were asked whether they kept track of their mortgage payments, with 33% of men claiming they did so, compared to just 23% of women.

In the study borrowers were also asked if they were happy with their mortgage. Some 36% said they were content with what they were paying in the current environment of rock bottom mortgage rates.

However, despite the high proportion of people unhappy with their mortgage, just 6% have considered switching to a better rate since the Bank of England cut the base rate to 0.25% in August. When asked what had ever stopped them from switching, 20% said the process would be too much hassle, while 14% said that it all seemed too complicated.

‘The mortgage sector is shrouded in a level of complexity and jargon that continues to discourage borrowers from acting swiftly to secure a better deal. The base rate is the most significant factor affecting mortgage rates, so it’s a shame that so few understand its effect on the most important financial commitment of their life,’ said Ishaan Malhi, the firm’s chief executive officer.

‘The industry has a role to play in demystifying mortgages for consumers, educating borrowers to make mortgages more accessible, but it’s vital that borrowers are clued up about when and how they should switch to a better rate, especially since today’s rates are as low as they’ve ever been,’ he added.