That’s according experts at investment platform AJ Bell, who have joined a growing band of voices warning borrowers of the pitfalls of failing to remortgage.
When borrowers sign up to their first mortgage, many will be making repayments on a fixed-rate basis for between two and ten years. After this period has finished they will default to their lender’s SVR, which is typically more expensive, unless they remortgage.
These rates – sometimes known as reversion or default – also move in line with the Bank of England’s base rate, which is currently at 0.75%. So, when rates go up, as they have done twice in the last 14 months, the SVR will also increase accordingly.
AJ Bell’s analysis suggests homeowners stuck on their mortgage company’s default rate are being saddled with £3,500 a year in additional costs.
And if this money had instead been invested, for the entire 25-year term of the mortgage, into a fund paying out 5% interest, the borrower could end up with a savings pot of almost £176,500, said AJ Bell.
Laura Suter, personal finance analyst at AJ Bell, said: “Homeowners could be missing out on a savings pot of more than £175,000 thanks to the high rates.”
Recently, the Financial Conduct Authority announced proposals to help the 140,000 ‘mortgage prisoners’ trapped on high rates and unable to move to cheaper deals due to stricter lending rules.
Suter added: “But there are still 1.8 million people in the UK on standard variable rates, who are being penalised for their loyalty. Some don’t realise their fixed-rate deal has ended while others haven’t got around to sorting out a new deal, and likely don’t realise how much extra it’s costing them.”
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