The majority (53 per cent) of customers who roll onto an SVR don’t remortgage for more than 10 years, research has shown. An analysis of the mort
The majority (53 per cent) of customers who roll onto an SVR don’t remortgage for more than 10 years, research has shown.
An analysis of the mortgage market by the Citizens Advice Bureau (CAB) revealed one in 10 borrowers face a penalty of more than £1,000 a year if they remain on an SVR at the end of their term, with first-time buyers particularly likely to be hit by higher payments.
A failure to switch to a better rate at the end of an initial term can be due to stricter affordability criteria introduced by the Bank of England in 2014 preventing borrowers from remortgaging – the so-called ‘mortgage prisoners’.
But Citizens Advice found it can also be due to a lack of consumer knowledge regarding the ability to switch to a better product.
According to CAB’s analysis of the 4,147 clients with mortgages it spoke to last year, older consumers, people on low incomes and those with lower education levels are more likely to face the extra payment, with many deterred by the complexity of the market.
The CAB has called on the Financial Conduct Authority (FCA) to tackle the problem, saying it should require lenders to improve the content, timing and format of existing prompts to switch mortgage deals.
It also called for mortgage deals to be made available to all eligible customers, better labeling of SVR products, an assessment of the impact of mortgage fees on consumer behaviour and a monitoring of the detriment faced by vulnerable consumers as a result of fees.
The gap between fixed rates and standard variable rates has grown significantly in recent years, and in March this year Moneyfacts revealed borrowers are likely to see the interest rate on their mortgage go up by 1.5 per cent when their two-year fixed rate matures.
CAB’s analysis adds to growing pressure within the industry for action over switching, with online broker Trussle recently calling for a set of standards to assist customers.
The regulator is currently investigating whether mortgage customers are able to make informed decisions about the options available to them as part of a market study, with a final report set to be published in early 2018.
Mike Richards, director at London-based Mortgage Concepts Associates, backed the CAB’s call for intervention by the regulator.
He said: “Lenders ought to be telling their clients on SVRs that they can move onto another mortgage product. They ought to be writing to them at the end of the deal. The FCA should be doing something about it.”
He said that brokers can play a small part by getting the word out on blogs and social media, but the risk of being seen as touting for new clients meant the main responsibility lay with lenders.
“Lenders ought to go back and review their mortgage cases – but are they going to do that, because they probably make a lot of money [out of people on SVRs]?”