Research by mortgage adviser Purely Mortgages has revealed that a staggering 9.8 million homeowners in the UK have never remortgaged despite the savings to be made.
At the end of a low initial rate period most mortgage deals switch to the lenders standard variable rate (SVR), which means an increase in the amount you pay. Mortgage lenders set their own individual SVRs, which are normally 1.5 to 2 per cent higher than the best rates available to attract new borrowers. SVRs can also rise or fall at a lenders discretion, although normally in sync with the Bank of England base rate, currently at 4.50 per cent.
However, Purely Mortgages calculates that if every household remortgaged away from their lenders SVR at, say, a current rate of 6.59 per cent to the leading fixed rate in the market place of 4.44 per cent, they could save £2,501.12 per household over two years.
Put simply, remortgaging means switching your mortgage lender by repay-ing your old loan and taking out a new one with a new lender.
Shopping around for a new deal can be straightforward and you can complete in a month to six weeks. Websites like www.moneysupermarket.co.uk or www.charcolonline.co.uk allow borrowers to run targeted, comparative searches to find the best deal. Customers can also apply online if they feel like it, and John Charcol waives its fee if you apply this way.
If you are not internet-savvy or prefer to receive professional advice, a mortgage adviser can help. Around 70 per cent of all mortgages in the UK are arranged by a broker or adviser who is supposed to do all the legwork for you.
Nick Gardner, director at broker Chase de Vere Mortgage Management, says everyone should remortgage as soon as they come to the end of their existing fixed or discounted deal. He says: Ideally, homeowners should contact a lender or broker a couple of months before their current scheme comes to an end so that they can ensure a seamless transition from one competitive rate to another. Paying an average of 6.5 per cent on the SVR is ludicrously expensive compared to the best deals that charge less than 4.5 per cent on remortgage cases.
But before you do anything, its always worth asking your existing lender what it can offer you. Sometimes, if you are a good customer and your lender does not want to lose you, it will offer a competitive rate to keep your business.
Potential borrowers also need to make sure they are not hit with excessive fees when they switch deals. Redemption penalties can sometimes run into thousands of pounds and it may be better to wait until any redemption penalties no longer apply before moving your loan. Arrangement fees, valuation fees, surveys, solicitors fees and exit fees can also all add up, and outweigh any savings made by switching loans, so always make sure you have done your sums.
For remortgagors in particular, note that some lenders offer fee-free deals where some or all of the fees are paid for you
Springing the SVR Trap
Amina and Joe McKenzie recently remortgaged, moving from the Bank of Scotlands SVR to a two-year tracker with Halifax at 4.79 per cent. Amina says: We had been with the Bank of Scotland for about ten years and started off on a discount deal for two years. Since then weve been on the standard variable rate. When I took time off on maternity leave, money was tighter so we decided to look around for a better deal.
We went through mortgage adviser London & Country and they found us a deal with the Halifax, saving us £70 a month.
The couples payments on their £65,000 mortgage went down from £559 to £489 a month for their two-bed flat in Bristol where they live with their young baby.
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