A survey of homeowners discovered, of those who have seen their income fall due to the pandemic, 32% – nearly a third – were considering not remortgaging when their current deal came to an end.
Customers who don’t remortgage will default to their lender’s standard variable rate (SVR) which is more expensive and would mean they would end up paying far more in interest on their repayments.
Yet, despite this, many are worried their financial situation will mean they might be turned down for a remortgage or are concerned the fact they have taken a mortgage holiday will impact their ability to obtain another loan.
Legal & General Mortgage Club, which conducted the survey, thinks it’s a problem which could impact over 700,000 borrowers who will reach the end of their two and five-year residential fixed-rate mortgages in 2021.
It explained moving onto a lender’s SVR could increase annual mortgage repayments by more than £2,500 when compared to borrowers who lock into an average two-year fixed rate product.
This could potentially create further financial difficulty for homeowners at a time when their incomes may already be stretched or reduced, including the predicted 4.7 million individuals who remain furloughed.
Of those who don’t plan to revert to their lender’s SVR, over half (52%) admitted they are now more likely to stick with their current lender when looking for a new product, with well over a third (37%) doing so because they believe this will be the easiest way to secure a new deal.
Look for affordable alternatives
Kevin Roberts, director of Legal & General Mortgage Club, said people who have seen their incomes drop will likely be finding this a particularly challenging time. As such, it was vital they avoided falling onto a reversion rate and paying more when there were other affordable options available.
He added: “Covid-19 may have dampened the confidence of a large number of borrowers wanting to lock into a new rate, yet the cost of not exploring their refinance options could be significant.
“Even for those borrowers who have seen a reduction in income, there may well be products available that would save them money in the long term when compared to their lender’s SVR.
“There are still thousands of great fixed rate-deals available, including furlough-friendly mortgages for those who have or continue to draw support from the government’s Job Retention Scheme.
“The UK also has a thriving specialist lending sector designed to help borrowers with complex circumstances, from the self-employed to those who might have experienced a credit blip, many of whom can only be accessed through speaking with an independent adviser who could help these borrowers to save thousands of pounds in their mortgage repayments.”
