By Sarah Davidson For Thisismoney.co.uk Published: 03:52 EDT, 3 June 2017 | Updated: 11:40 EDT, 3 June 2017 Mortgages are boring, it
Mortgages are boring, it’s buying the house that’s the exciting bit. So when it comes to remortgaging, it’s not always top of our wish-list.
Research published by online mortgage broker Trussle has found that homeowners who let their mortgage rate lapse at the end of their deal are forking out thousands of pounds extra a year that they don’t have to.
The firm compared the cheapest two-year fixed rates available from 76 lenders with the same lenders’ default mortgage rate and found the average borrower would save £3,240 in interest a year by remortgaging.
Trussle is calling for lenders to cap how much they charge borrowers on SVR
When you get a mortgage, it’s usual to opt for a deal with an introductory offer – this is the two-year fix or five-year fix type deal and rates tend to be very cheap at the moment.
But the mortgage is for much longer, normally between 25 and 30 years – so when your initial fixed rate period comes to an end, your lender will switch you to its standard variable rate, its SVR.
These are typically much more expensive than the cheapest rates they offer, but if you don’t bother to get in touch with them, or a broker, you won’t automatically be offered another good deal.
Ishaan Malhi, chief executive of Trussle, says: ‘Borrowers are being put at a huge disadvantage by not understanding the implications of lapsing onto their lender’s standard variable rate.
‘We want to see 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.’
While most of the UK’s 11.1 million mortgage borrowers do successfully remortgage before being moved to a SVR, millions fail to.
Sometimes this is out of their control – 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, close to two million people on SVRs could switch immediately. This group constitutes 18 per cent of the mortgage borrowing population, and they are collectively overpaying lenders by £9.8billion in interest payments every year.
So why don’t they remortgage? Trussle found it’s a combination of not understanding, not knowing how or when to remortgage, the hassle factor and being totally unaware that it’s far more expensive not to.
What is SVR?
SVR stands for standard variable rate and it is the rate that all mortgage borrowers pay if they’re outside of a product period. If you take a two-year mortgage and after two years do nothing, you’ll automatically move to SVR.
It is often linked to the Bank of England’s base rate. but it doesn’t have to be and SVRs vary wildly from lender to lender.
If you’re with First Direct, it’s currently at 3.69 per cent. Borrowers with a mortgage from Norton Home Loans meanwhile face paying a whopping 12.83 per cent on SVR.
Trussle’s analysis suggests that borrowers with Lloyds, Nationwide, Santander, RBS, Barclays, and HSBC would see their interest rate jump by an average of 2.5 per cent when automatically transferred from a leading two-year fixed rate to an SVR at the end of their fixed period.
Some of the worst offenders, charging SVRs of nearly 6 per cent, are the smaller building societies.
Taking just one example, Nottingham building society slaps borrowers with an SVR of 5.59 per cent but offers a two-year fixed rate of just 1.6 per cent and a five-year rate of 2.21 per cent.
On a £200,000 mortgage with 25 years left on the term you’d be paying monthly repayments on the two-year fix are £809.30, on the five-year monthly payments rise to £868.30 but on the SVR they jump to £1,238.95.
Scroll down to see what your lender is charging on SVR and just how much cheaper a rate you could be on.
How can lenders get away with it?
Five of the big six lenders – Lloyds Banking Group, RBS, Santander, Barclays, HSBC and Nationwide – do send a reminder but more often than not, it’s just one letter
Because a mortgage contract is long-term, you actually sign up to terms that say you acknowledge that the cheap introductory rate is only for a fixed period of time and that it’s up to you to find another good deal when it ends or simply accept the SVR rate.
But your lender won’t necessarily remind you when it’s time to switch.
According to Trussle, five of the big six lenders – Lloyds Banking Group, RBS, Santander, Barclays, HSBC and Nationwide – do send a reminder but more often than not, it’s just one letter of notification rather than an email, text or phone call.
This letter is also unlikely to tell you what your current mortgage balance is, what rate you’re on now, what your payments are or how they’ll change if you do nothing.
On top of this, they also won’t tell you that if you choose to remortgage, you could save a lot of money every month.
At the moment there are no rules forcing them to do any of this, which is odd if you look at other financial services products.
From April this year, insurers have had to start telling existing customers that they could save money if they shop around when their policy is up for renewal.
They’ve also had to start telling customers what they paid last year and what they’ll be paying this year and for customers who have been with the same insurer for four years or more they must include this sentence in a letter: ‘You have been with us for a number of years. You may be able to get insurance cover you want at a better price.’
The annuity market is about to see similar changes. From March next year, when pension providers write to you at retirement they will have to explain in much more detail how different annuities work and warn you clearly that if you don’t get an enhanced annuity, you could get a worse deal.
They’ll also have to start telling you not just what annuity rate they’ll give you, but also exactly how to shop around to get a better deal.
It’s not clear whether the financial watchdog plans to adopt a similar approach for mortgage lenders but they are in the middle of a consultation with the industry and it’s likely to be discussed.
Do the sums yourself using our true cost calculator and work out exactly how much money you could save
Should I really be worried or is this just a mortgage broker drumming up business?
It’s both. Of course Trussle wants more people to remortgage – they get paid if you use them to do it.
But the firm has raised an important issue for millions of mortgage borrowers in the UK who are overwhelmed by the stress caused by trying to remortgage and so they don’t and end up taking a huge financial hit.
It can be fairly straightforward to remortgage but it can also be a massive headache involving months of paperwork and emails back and forth between brokers, lawyers and surveyors – not to mention the lender.
It is getting marginally easier. Banks and building societies are improving their online systems and if you aren’t borrowing any more, it can be quite easy to switch.
It shouldn’t be hard and lenders and brokers shouldn’t overwhelm you with jargon and numbers – but even they do, it’s not a reason to ignore your mortgage.
Watch out for being encouraged to remortgage to a two-year deal every time however. The cheapest rates often come with bumper fees and remortgaging triggers the need to pay legal and valuation fees.
This is why This is Money tends to think slightly longer-term products can be better value, so long as you don’t plan to change your home or need to borrow more before the end of the five year period.
Do the sums yourself using our true cost calculator and work out exactly how much money you’re paying to avoid a temporary headache.
Then speak to an independent mortgage broker who is bound to find the best deal for you.
|Lender||SVR||2yr fix rate||Difference||5yr fix rate||Difference|
|Airdrie Savings Bank||4.5||1.5||3||2.5||2|
|Bank Of Ireland||4.27||1.4||2.87||2.16||2.1|
|Cambridge Building Society||4.79||1.88||2.91||2.54||2.24|
|Chelsea Building Society||4.91||1.21||3.69||2.04||2.87|
|Chorley Building Society||5.28||1.94||3.34||2.57||2.71|
|Coventry Building Society||4.38||1.44||2.94||1.9||2.48|
|Darlington Building Society||5.75||1.55||4.2||2.73||3.02|
|Dudley Building Society||4.99||3.36||1.63||3.02||1.97|
|Earl Shilton Building Society||5.11||6.11||-1||3.11||2|
|Family Building Society (NCBS)||4.63||2.15||2.49||2.47||2.16|
|First Trust Bank||4.18||1.99||2.19||2.12||2.06|
|Hinckley & Rugby Building Society||5.64||1.65||3.99||2.37||3.27|
|Holmesdale Building Society||4.87||2.42||2.45||3.27||1.6|
|Leeds Building Society||5.48||1.26||4.22||1.84||3.64|
|Leek United Building Society||5.19||1.71||3.48||2.74||2.45|
|Monmouthshire Building Society||4.79||1.41||3.38||2.43||2.36|
|Nationwide Building Society||3.75||1.23||2.52||1.92||1.83|
|Newcastle Building Society||5.99||1.39||4.6||2.24||3.75|
|Norwich & Peterborough Building Society||4.8||1.2||3.6||2.04||2.76|
|Nottingham Building Society||5.59||1.6||4||2.21||3.38|
|Principality Building Society||4.79||1.41||3.38||2.22||2.57|
|Progressive Building Society||4.54||1.77||2.77||2.33||2.22|
|Royal Bank Of Scotland||3.82||1.32||2.5||2.03||1.79|
|Saffron Building Society||5.39||2.42||2.97||2.39||3|
|Santander UK Plc||4.5||1.31||3.2||2.07||2.43|
|Skipton Building Society||4.78||1.25||3.53||1.96||2.82|
|The Co-Operative Bank||4.5||1.22||3.28||1.95||2.55|
|The Mortgage Lender||5.02||2.02||3||3.67||1.35|
|The Mortgage Works||4.82||2.25||2.57||3.01||1.81|
|West Bromwich Building Society||3.99||1.59||2.4||2.15||1.84|
|Yorkshire Building Society||4.8||1.08||3.72||2.03||2.76|
WHAT DO THE EXPERTS THINK?
Montlake: Lenders pick and choose who they offer the best rates to
Andrew Montlake, mortgage broker, Coreco
Mortgage lenders have been guilty of not looking after all of their existing clients for many years, often using the money they make on existing borrowers to help fund products to entice in new borrowers, so this is nothing new.
This has started to change in recent months with lenders accepting that in order to treat customers fairly they should be offering all existing clients the same rates as new borrowers. There are still some lenders who pick and choose who they offer their best rates to and borrowers need to speak to a professional adviser before their existing mortgage expires to ensure they do not end up paying to much.
Shaun Church, mortgage broker, Private Finance
Church: Try fixing for longer to avoid expensive SVRs and reduce remortgaging
Standard variable rates have long offered poor value for money for borrowers. Although remortgaging is sometimes viewed as a hassle, it is well worth doing to avoid paying excessively high rates. In a low rate environment, proactive borrowers who swap deals regularly often reap the rewards.
However, longer term fixed rate products should be considered by those who’d rather not take on the admin of remortgaging regularly and don’t want to worry about falling onto an SVR.
Daniel Hegarty, mortgage broker, habito
Hegarty: We’ll automatically let you know if you could be paying less
Consumers have been disadvantaged by a mortgage market that is opaque and overly complex for too long. The fact that people are handing over hundreds, if not thousands, more than they need to, is a shocking indictment of the state of the service they receive.
Thankfully, record-low interest rates are starting to force homeowners to re-engage with their mortgage and use the opportunity to switch and save. However currently, there is little incentive for lenders to change their ways, so businesses like ours must continue to look out for British homeowners. Not only do we alert our customers before they slip onto an SVR but we monitor the market every day and automatically alert them when there’s a better deal for their unique circumstances, meaning they never overpay.
True cost mortgage calculator
This mortgage payment calculator will allow you to see the effect of sneaky arrangement fees on your repayments. Use the second part of the calculator to compare deals.