New research has revealed that a majority of homeowners are unaware of how a cut in the Bank of England’s base rate could affect their mortgage payments, suggesting they could be missing out on a better deal.
According to online mortgage broker Trussle, only one in four homeowners understand how base rate cuts could affect their mortgage payments.
The Bank of England cut the base rate for the first time in seven years to 0.25% in August, prompting mortgage lenders to slash rates.
Tracker rates dropped by 0.25% in line with the BoE’s action, while fixed rates also hit record lows, with two-year fixed rates available for as little as 1.39%.
However, the standard variable rate – the default rates that borrowers often find themselves on as soon as an initial rate has ended – did not drop nearly as far. The average standard variable rate before August’s base rate change was 4.8%, but by November had fallen only 0.17% to 4.63%.
As a result of the widening gap between the best and worst rates on the market, people stuck on expensive standard variable rates could now save a further £380 per year by switching to a market leading fixed rate.
What had been an average annual saving of £3,120 has grown to £3,500, as a result of August’s base rate cut.
Only a third (36%) of borrowers said they were happy with what they were paying in the current environment of rock-bottom mortgage rates.
Trussle said this could be explained by the one in three borrowers currently on a standard variable rate.
Despite the high proportion of people unhappy with their mortgage, just over one in 20 borrowers (6%) have considered switching to a better rate since the Bank of England cut the base rate in August.
Ishaan Malhi, CEO and founder of Trussle, said: “The mortgage sector is shrouded in a level of complexity and jargon that continues to discourage borrowers from acting swiftly to secure a better deal. The base rate is the most significant factor affecting mortgage rates, so it’s a shame that so few understand its effect on the most important financial commitment of their life.
“The industry has a role to play in demystifying mortgages for consumers, educating borrowers to make mortgages more accessible, but it’s vital that borrowers are clued up about when and how they should switch to a better rate, especially since today’s rates are as low as they’ve ever been.”
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