That’s according to research by online mortgage broker, Trussle, which has said borrowers who lapse on to their lender’s standard variable rate (SVR) after being on a two-year fix were effectively being penalised for their loyalty.
It is calling for a mortgage switch guarantee – a set of proposals it hopes will improve the switching process.
And, as part of this, Trussle wants mandatory letters to be sent from lenders to borrowers exactly three months before the end of the term, accompanied by an electronic communication as back up.
Communication problems
Indeed, Trussle’s research discovered one of the reasons borrowers lapsed to their SVR was because they didn’t know it was time to switch until too late. One in five said they couldn’t remember the last time their provider contacted them about their mortgage and twice as many said their broker or lender didn’t do enough to keep them updated.
Over half did not understand the terms included in letters, and many of these stopped reading when they reached a section they didn’t understand.
Leeds Building Society emerged from Trussle’s investigation as the lender whose SVR was the most expensive. Homeowners coming to the end of their initial fixed-rate deal with Leeds and reverting to the SVR would pay £4,152 a year, according to analysis.
Metro Bank, however, appears as the lender with the smallest difference between its two-year fixed rate and SVR. It would charge customers an additional £157 a month or £1,881 a year for defaulting to the SVR.
Ishaan Malhi, CEO and founder of Trussle, said: “Homeowners are essentially being penalised for loyalty and collectively overpaying on interest by billions of pounds ever 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.”
Alerts
He added: “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.”
