According to a new study of 16 UK mortgage lenders, the average homeowner is being hit with £222 extra a month for lapsing onto a lender’s Standard Variable Rate. The analysis found that as of August 28th, the average homeowner slipping onto their lenders’ SVR after the initial two-year fix faced an extra £2,664 a year in interest payments, equating to £222 a month.
It is estimated that across the UK there are currently two million borrowers on an SVR, who could collectively save £5.3 billion a year by switching. Of the chosen lenders, there are huge differences in the jump from fixed rates to SVRs. Leeds Building Society fared the worst, penalising those lapsing onto its SVR by £4,152 a year. At the other end of the table is Metro Bank, which charges customers an additional £157 a month, or £1,881 a year when they move onto its SVR.
One reason why a borrower may lapse onto an SVR is simply that they weren’t aware that it was time to switch until it was too late. In the survey of 2,000 mortgage borrowers, one in five (21%) said they couldn’t remember the last time their provider contacted them about their mortgage, while almost twice as many (37%) stated that their lender or broker doesn’t do enough to keep them updated.
In addition, half (51%) didn’t understand terms included in letters they receive from their lender. Worryingly, of this group, a quarter (24%) ignored these terms and only read the remaining parts, while 16% stopped reading completely when they reached a section they didn’t understand.
Homeowners are essentially being penalised for loyalty and collectively overpaying on interest by billions of pounds every year. While lenders are improving the way in which they communicate with customers, more needs to be done to reduce the vast number of people on SVRs. As part of our call for a Mortgage Switch Guarantee, a set of proposals we hope will improve the switching process, we’re asking that a mandatory letter is sent from lenders to borrowers exactly three months before the end of the initial term, which must be accompanied by electric communication to ensure it’s not missed. It’s vital that homeowners know when the introductory period of their mortgage is coming to an end and are able to switch when it’s right for them. With our free mortgage monitoring service, borrowers are able to relax knowing that their mortgage is being proactively looked after and that they’ll be alerted and guided through the switching process when it’s time to switch to a better deal.