Last week we reported that remortgaging could save you £2,000 compared with reverting to your lender's Standard Variable Rate (SVR). Now, research from online mortgage broker Trussle has revealed that the cost of slipping onto your SVR is even higher if you're with one of the big six mortgage providers, to the tune of £3,242 per year!
As you know, mortgage rates have been edging down for some time now, reaching new lows again and again. What this means is that those borrowers who are coming off the end of a fixed term now will generally be able to find much better rates than were on offer even two years ago. In contrast, reverting to the lender's SVR will generally result in a rate that is higher than the prior fixed rate, and therefore quite a bit higher than the rates currently available.
This goes doubly for the big six lenders - Lloyds, Nationwide, Santander, RBS, Barclays, and HSBC – which serve 69% of the market (according to CML figures). Trussle's Mortgage Saver Review compared average SVRs and two-year fixed rates from 76 lenders over a six-month period, and found that customers served by those brands would see their monthly interest rate jump by 2.5% on average when reverting from a two-year rate to the SVR. This translates to a £3,242 hike in annual interest repayments, more than the average household's monthly income.
Despite this obvious difference in repayments – something that no borrower will surely be able to miss – an estimated three million households are currently sitting on their SVR. Of these, around one million are mortgage prisoners (according to AMI data), which means they are unable to switch due to stricter borrowing rules causing them to fail to meet new mortgage criteria.
The remaining two million, who make up 18% of the mortgage borrowing population, have nothing holding them back from remortgaging, and are collectively overpaying by £9.8 billion every year while they don't. With 11.1 million borrowers, on the other hand, able to successfully remortgage without issue, surely these borrowers have nothing to fear.
The main problem seems to be simply a lack of awareness, with 65% of UK mortgage holders unaware that their lender's SVR is typically worse value than a fixed mortgage rate, and 24% not knowing what SVR stands for in the first place. At the same time, 48% of respondents don't know when their fixed rate term comes to an end, which could inadvertently cost them quite a bit in higher repayments while they get a new deal sorted.
Ishaan Malhi, CEO and founder of Trussle, said: "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. The industry, its regulators, and the UK government can address these challenges by working together."
To avoid slipping onto your SVR (which should be clearly stated in your mortgage paperwork), make a point of writing down when your current mortgage term ends. Start looking for remortgage deals at least a month before the end date, for instance by looking through our Best Buy charts or using our mortgage calculator and filtering accordingly, so you have time to agree on a new mortgage. Don't discount your current provider, either, as even if they are one of the big six offering high SVRs, that doesn't mean their regular mortgage rates are not competitive./
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.