Mortgage borrowers are missing out on potential savings of nearly £1.6 billion every year as a result of lenders failing to contact them when their fixed rate deal ends, new research has revealed.
According to price comparison and switching service uSwitch.com, three quarters (77%) of mortgage holders have not been contacted by their lender at the end of their fixed rate deal, costing homeowners £1.6 billion a year.
With 2.1 million homeowners with a fixed rate mortgage which is due to end in the next 15 months, and a third (32%) not knowing what their payments might be once their deal ends, there is a real risk that many will be caught out by a possible interest rate rise.
Economists have suggested that the first interest rate increase for a decade could come as early as November after the Bank of England warned a hike was likely in the coming months.
Speaking on Radio 4’s Today programme last week, Bank of England governor Mark Carney hinted that interest rates could rise from their current historic low of 0.25%.
“What we have said is that if the economy continues on the track that it has been on – and all the indications are that it is – in the relatively near term you can expect that interest rates will increase,” he said.
Overall, the research shows that three quarters (77%) of lenders are not communicating the potential financial implications associated with homeowners’ fixed rate deal coming to an end.
If homeowners roll over onto a standard variable rate (SVR), they could end up with an interest rate as high as 5%.
This is 4% higher than the current cheapest fixed rate on the market and the financial implications could be crippling to household budgets.
The vast majority of homeowners appear to be in the grip of mortgage malaise, despite being dissatisfied with their mortgage deal.
According to the research, eight in 10 of mortgage holders have not remortgaged in the last two years or even considered it.
Of this group, fewer than a fifth say they are happy with their current arrangement and just 5% feel loyalty to their lender.
Tashema Jackson, money expert at uSwitch.com, said: “It is unacceptable that the majority of UK consumers nearing the end of their fixed rate mortgage deal are unaware of the consequences of slipping onto their lender’s standard variable rate, and the additional strain it could put on their finances.
“With the Bank of England hinting at an interest rate rise in the coming months, lenders need to provide clearer information to their customers. This should include explicit detail about the ramifications of moving from a fixed rate mortgage deal to the lender’s standard variable rate, and what that means for their monthly mortgage costs.
“Unlike many other financial service providers, mortgage lenders are not obliged to contact their customers before their deal ends. This needs to change urgently as homeowners have a right to know how dramatically their financial situation could be affected if they don’t move to another fixed rate deal.”
