The UK’s mortgage lenders are hitting loyal customers who stay with them once their mortgage term is up with a hike in rates of over £3,000, a new study has found.
According to mortgage broker Trussle, borrowers that slip onto the standard variable rate are having to pay £3,242 extra a year because of the higher interest rate.
Once your mortgage term is up, if you fail to transfer or remortgage your lender will transfer you to the standard variable rate.
Not only are these rates typically higher, but if interest rates rise home owners could see their mortgage payments go up even more.
Trussle compared the average SVRs and two-year-fixed rates from 76 lenders over a six-month period.
Its study 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.
Ishaan Malhi, CEO and founder of Trussle, said: “Borrowers are being put at a huge disadvantage by not understanding the implications of lapsing onto their lender’s standard variable rate. This costs UK homeowners an alarming £10 billion a year in interest payments.”
One reason why so many borrowers may be failing to switch to a better rate is due to their lack of awareness about what happens when their mortgage term is up.
The research found that a worrying 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.
Nearly half (48%) of UK mortgage holders don’t even know when their fixed rate period comes to an end.
Currently three million households are on a lender’s SVR. Around one million are mortgage prisoners, who unable to switch as they fail to meet the criteria for a new mortgage.
Close to two million people on SVRs are collectively overpaying lenders by £9.8 billion in interest payments every year and could switch immediately.
“The industry, its regulators, and the UK government can address these challenges by working together. Potential solutions could be to agree a reasonable upper limit on SVRs, and a system where lenders are not only obliged to warn their mortgage customers well in advance of their fixed rate coming to an end, but also to confirm receipt of this notification,” said Malhi.
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