An online mortgage broker is calling for lenders to adopt a ‘four months’ notice’ pledge to prevent homeowners unwittingly falling into expensive ‘default’ rates at the end of their deals.
Habito thinks half of the UK’s mortgage holders could save as much as £300 a month if they received early warnings their deal was due to expire as this would give them time to search for a new product.
Why switch?
When borrowers take out a mortgage to buy their first home, an introductory rate will apply which entitles borrowers to a competitive rate for a specified period of time.
Once this deal expires, if the borrower does not switch to a new deal by remortgaging they will automatically revert to their lender’s standard variable rate (SVR).
Habito said this rate is typically somewhere between 4.24% and 4.99%. So, if someone had been enjoying a low interest rate of between 1.89% and 2.29% during their fixed term, they could see payments soar by a third when they moved to the SVR.
Sending a warning
Now Habito wants it to be mandatory for all mortgage lenders and banks to provide four months’ notice prior to the initial period of a mortgage deal ending – using email or text to make the communication more effective.
Currently, its investigations suggested, only one of the UK’s top six mortgage lenders offers their customers three months’ notice. Half said they ‘try’ to notify their customers before the end of the term, ‘normally’ via a single letter in the post, while one lender said it could wait as late as one month prior, and one even said it gives no notice whatsoever.
The average remortgage takes between one and two months to complete.
Rewarding loyalty
Daniel Hegarty, founder and CEO of Habito, said: “As is so often the case in traditional financial services, loyalty is penalised rather than rewarded. The longer you stay with the status quo, the more you pay. People deserve better than that – they need the right information about their mortgage, given at the right time, to make the right choice on what’s best for them.”
The move comes as the regulator, the Financial Conduct Authority (FCA) raised concerns not all lenders were communicating effectively with customers and also called for more to be done to help customers stuck on expensive SVRs.
Habito said it issues text message alerts and emails to customers with four months to go on their current deal, notifiying them of the end date and the next steps to take to prepare for their switch.
Before this, as a Habito customer reaches the final 12 months of their fixed term, Habito also sends customers using Google and Outlook, a calendar notification that they can use to diarise the four Months’ Notice date in their diary.
Hegarty added : “It can take anywhere up to eight weeks for a remortgage to complete so if a customer is only notified the month before the end of their deal, they’ll most likely end up paying the lender’s SVR. This could see their mortgage payments soar by 30% from one month to the next.”
