Home borrowers in the UK are being urge to be aware that if they fail to renew their mortgage and slip onto the Standard Variable Rate with the nation’s six biggest mortgage lenders they could be paying more than they need to.
A comparison of average SVRs and two year fixed rates from 76 lenders over a six month period by online mortgage broker Trussle found that some big lenders are ‘penalising’ customers with a £3,242 increase in annual interest repayments.
Trussle says that it is the first research of its kind to carry out such a comparison. It found that borrowers with Lloyds, Nationwide, Santander, RBS, Barclays, and HSBC, which collectively serve 69% of the market, would see their monthly interest rate jump by an average of 2.5% when automatically transferred from a leading two year fixed rate to an SVR at the end of their fixed period.
The broker says that while most of the UK’s 11.1 million mortgage borrowers do successfully remortgage before being moved to a SVR, a vast number fail to do so. Of the three million households currently on a lender’s SVR, around one million are ‘mortgage prisoners’, unable to switch, as the introduction of stricter borrowing rules means they’re failing to meet the criteria for a new mortgage.
However, it points out that close to two million people on SVRs could switch immediately. This group constitutes 18% of the mortgage borrowing population, and they are collectively overpaying lenders by £9.8 billion in interest payments every year.
The research found that one of the main reasons so many people languish on SVRs is due to lack of awareness among borrowers. Some 65% of UK mortgage holders don’t know that a lender’s SVR is typically worse value than a fixed rate, while 24% have no idea what SVR even stands for.
The firm also says that 48% of UK mortgage holders don’t know when their fixed rate period comes to an end. Delaying remortgaging by just a month would cost £272.50 for a borrower at one of the UK’s top six lenders.
Another factor contributing to this switching inertia is the negative experience so many people have when securing their first mortgage, which in turn stops people from proactively managing their loan, the research also found.
Some 41% of the borrowers asked by Trussle recalled the experience of getting their first mortgage negatively and 8% even admitted it was so stressful that they cried during the process.
‘The results of this inaugural mortgage saver review highlight the need for the mortgage sector to better educate borrowers and simplify a raft of unfair practices. Borrowers are being put at a huge disadvantage by not understanding the implications of lapsing onto their lender’s SVR. This costs UK home owners an alarming £10 billion a year in interest payments,’ said Trussle chief executive officer Ishaan Malhi.
‘The industry, its regulators, and the UK Government can address these challenges by working together. Potential solutions could be to agree a reasonable upper limit on SVRs, and a system where lenders are not only obliged to warn their mortgage customers well in advance of their fixed rate coming to an end, but also to confirm receipt of this notification,’ he added.
