Loyalty doesn’t pay. At least not when it comes to mortgages. Sticking with your mortgage after your deal comes to an end could cost you over £400 a year, according to new research from Citizens Advice, the government-backed charity.
The research compared rates from six of the UK’s largest mortgage lenders and found the typical customer on their lender’s standard variable rate (SVR) could save was £439 a year by switching to their lender’s cheapest fixed term deal.
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More than a million people would be better off if they switched
Citizens Advice calculates 83% of SVR borrowers (1.2 million people) would be better off by switching to a new mortgage deal.
The research also highlights low awareness of how mortgage deals work, with just over half on expired fixed term mortgages believing they pay the same or less than newer customers.
First time buyers pay more
First time buyers, who tend to have larger mortgages and smaller deposits, will pay on average £1,359 a year more than they need to once their initial deal expires.
But, it’s not just the young at risk, the Citizens Advice also find that older and poorer mortgage holders are also more likely to pay more.
Lenders need to provide better information
Citizens Advice wants regulators to make all lenders provide clear information to new and existing customers about how rolling onto a standard variable rate will make them pay much more than they need to.
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.
“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.”
How mortgage deals work
Most mortgage deals have an initial term, where your rate is either fixed or discounted for between two and five years (a few fixed deals do last as long as ten years). Often you’re tied into this deal and will face early repayment charges if you try to remortgage before the deal ends.
After this deal expires you’ll roll onto your lender’s standard variable rate (SVR), which is like their base rate of lending and will vary at their discretion. SVRs are typically significantly more expensive than the rates available initial deals, for example the current average SVR is 4.28%, versus the lowest fixed rate deal of 0.99%.
So, if your deal is coming to an end you shouldn’t wait for too long before remortgaging, but just make sure your deal has definitely expired before you do, or you might face early repayment charges.