The UK’s six biggest mortgage lenders are penalising customers who slip onto their Standard Variable Rates (SVR) with a £3,242 hike in annual interest repayments – more than a month’s income for the average household – according to a new sector study, the Mortgage Saver Review, from online mortgage broker Trussle.
The research is the first of its kind to compare average SVRs and two-year-fixed rates from 76 lenders over a six-month period. It revealed that borrowers with Lloyds, Nationwide, Santander, RBS, Barclays, and HSBC, which collectively serve 69% of the market, would see their monthly interest rate jump by an average of 2.5% when automatically transferred from a leading two-year fixed rate to an SVR at the end of their fixed period.
A market-wide issue
While most of the UK’s 11.1 million4 mortgage borrowers do successfully remortgage before being moved to a SVR, a vast number fail to do so. Of the three million households currently on a lender’s SVR, around one million5 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% of the mortgage borrowing population, and they are collectively overpaying lenders by £9.8 billion6 in interest payments every year.
A ‘switching inertia’ crisis
The research 7 found that one of the main reasons so many people languish on SVRs is due to lack of awareness among borrowers. A staggering two thirds (65%) of UK mortgage holders don’t know that a lender’s SVR is typically worse value than a fixed rate, while one in four (24%) have no idea what ‘SVR’ even stands for.
Equally alarming, almost half (48%) of UK mortgage holders don’t know when their fixed rate period comes to an end. Delaying remortgaging by just a month would cost £272.50 for a borrower at one of the UK’s top six lenders.
Another factor contributing to this switching inertia is the negative experience so many people have when securing their first mortgage – which in turn stops people from proactively managing their loan. Two in five (41%) of the borrowers we spoke to in the study recalled the experience of getting their first mortgage negatively and one in ten (8%) even admit to crying during the process.
Helpful Resource Depending On Your Requirements