Loyal customers who don’t remortgage after their fixed term deal can pay £400 extra a year, Citizens Advice research reveals. The penalty affects peop
Loyal customers who don’t remortgage after their fixed term deal can pay £400 extra a year, Citizens Advice research reveals.
The penalty affects people who are rolled onto their bank’s standard variable interest rate at the end of a fixed term mortgage deal.
The Citizens Advice research finds that people who remain on the standard rate after a 2 year fixed term mortgage deal face an average loyalty penalty of £439 a year.
The charity calculates that 1.2 million people would be better off if they switched to a new deal – with 1 in 10 paying over £1,000 a year extra by staying on the standard variable rate.
First time buyers, who typically have more debt and more time left on their mortgage, face paying an extra £1,359 a year once their 2 year fixed deal expires.
The national charity also reveals older and poorer mortgage holders are more likely to be hit by a loyalty penalty.
Citizens Advice has compared the interest rates of the UK’s six largest mortgage providers to find out how much a typical standard variable rate (SVR) customer could save by switching to each provider’s cheapest fixed term deal. It found these customers face an average annual loyalty penalty of £439 after 2 year fixed mortgage deals expire.
For some people – who have less left to pay on their mortgage – it might be cheaper to remain on the standard variable rate, rather than pay fees to take out a new mortgage. But Citizens Advice calculates that 83% of people currently on a standard variable rate (1.2 million) would be better off if they switched to a new deal.
The charity’s report also finds low awareness of the problem – with over half of people (51%) on expired fixed term mortgages wrongly think they pay the same or less than newer customers.
Citizens Advice has been investigating how much more loyal customers face paying in different industries – such as energy and broadband – than new customers.
Its latest report, ‘Exploring the loyalty penalty in the mortgage market’, highlights problems with how mortgage holders are told about their options when fixed term deals end, with two thirds saying they have never been informed they could save money by switching.
Citizens Advice wants the Financial Conduct Authority to make all lenders provide clear information to new and existing customers about how much they could lose by rolling onto a standard variable rate.
It also says the FCA should consider changing the name of the default mortgage rate to help customers better understand the changed nature of the contract, replacing ‘standard variable rate’ with ‘expired rate’, for example.
Citizens Advice Chief Executive, Gillian Guy, said: “More than a million loyal mortgage customers are being stung with higher interest charges when their fixed deals end.
“Buying a home is a major life decision and borrowers taking out their first mortgage often spend a great deal of time working out the best option for them. Our research shows that many who choose fixed rate mortgage deals face steep price hikes once they expire. But two thirds of borrowers say their lender has never told them they could save money by switching.
“Lenders must be more upfront and provide their customers with clear information about what could happen to the cost of their loan once the fixed term period ends.”