Home owners who lapse onto their lender’s Standard Variable Rate (SVR) mortgage are paying and extra £4,500 per year for their loyalty, according to new research.
The study, which comes a year after the Competition and Markets Authority (CMA) received the loyalty penalty super complaint, explored loyalty penalties across a number of different household bills.
Gas and electricity fared the worst, after mortgages, as failing to switch tariffs costs bill payers £269 on average, per year, the data from online mortgage broker Trussle.
Those with household insurance could be overpaying by £238 per year by not switching deals. Similarly, broadband customers face an average annual premium of £192 for not switching.
Meanwhile, those on a pay monthly mobile phone deal face an annual penalty of £132 for not renegotiating their deal and combined, the average annual loyalty penalty for gas and electricity, household insurance, broadband and mobile phone customers stands at £831.
However, the loyalty penalty associated with mortgage switching inertia works out at a much higher £4,500 per year, some 540% more than the other bills combined.
The firm says that the scale of the problem is illustrated by the two million borrowers who are currently sat on an SVR. This means they collectively risk missing out on £9 billion worth of savings a year by not switching to the best deal.
Previous research from Trussle suggests poor communication is causing many borrowers to lapse onto their lender’s SVR as 21% said they couldn’t remember the last time their provider contacted them about their mortgage and 37% say their lender or broker doesn’t do enough to keep them updated.
However, there is evidence to suggest home owners are beginning to open their eyes to the impact of falling onto an SVR. Official data shows a significant 16% year on year increase in the number of people switching deals with their existing provider. Some 292,500 people carried out a ‘mortgage product transfer’ in the second quarter of 2019.
But the firm points out that this spike means many homeowners could also be missing out on 99% of deals by simply changing products rather than considering other lenders.
Trussle is calling for lenders to sign up to the Mortgage Switch Guarantee to make mortgages fairer, more transparent and more accessible.
‘Consumers are essentially being penalised for staying loyal to their providers and collectively overpaying billions of pounds across the mortgage, utility, product and service sectors,’ said Ishaan Malhi, chief executive of Trussle.
‘Since the CMA received the super complaint last year we’re yet to see any real progress, despite assurances from the then Government. Similarly, there’s been little movement from the mortgage industry,’ Malhi added.
