New Which? research has found that homeowners with standard variable rate (SVR) mortgages could be paying up to £4,000 per year more than if they switched to a new deal.
Which? surveyed over 3,500 homeowners and found that 25% had SVR mortgages, which you get transferred on to after the introductory term of your mortgage is over.
But with SVRs so much higher than the rates available on fixed, discount and tracker mortgages, these households could save substantial amounts by remortgaging.
Homeowners don’t know their mortgage rate
Our survey also found that a substantial amount of homeowners have no idea what rate they’re paying.
Just 27% of respondents knew their exact mortgage rate – and while 41% said they knew their approximate rate, 33% were completely in the dark.
How much are people paying?
The chart below shows the average rates paid by the 2,221 survey respondents who told us they knew either the exact or approximate rate of interest on their mortgage.
Borrowers being stung by expensive SVRs
By not being aware of how much they're paying, many homeowners could be spending far more than they need to, especially if they end up on their lender's standard variable rate (SVR).
This is the rate that your bank moves you on to at the end of your introductory term. It will usually be considerably more expensive than the rate you initially sign up to, and can vary depending on changes to the Bank of England's base rate.
The current average SVR stands at an eye-watering 5.11%, according to data from Moneyfacts. Fixed, tracker and discount mortgage rates, meanwhile, offer far more palatable averages of 2.98%, 2.81%, and 2.87% respectively.
Interestingly, age appeared to be a factor in homeowners' likelihood of being on an SVR. The table below shows how the older the homeowner is, the more likely they are to be paying a standard variable rate.
|Age group||Percentage of borrowers on lender's SVR|
Source: Which? mortgage satisfaction survey, June 2018. Based on 883 respondents.
Why aren't SVR payers remortgaging?
Half (50%) of those who have had a mortgage for more than five years told Which? they were happy with their deal.
However, 17% said they simply didn't think switching was worth the hassle.
Alarmingly, 41% of people paying SVRs said they would be unlikely to switch if they came across a cheaper deal today.
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Failing to switch could cost you thousands
The costs of not switching from your lender's SVR can run to thousands of pounds a year, meaning it's important to seek a better deal if you're able to.
We ran analysis comparing how much people would pay if they had a best-rate mortgage on an average-priced UK or London property with the amount they'd pay with an SVR mortgage.
Our scenario assumes the buyer has a 90% LTV mortgage and is paying the loan back over a 25-year term.
Mortgage payments on an average-priced UK home
Our findings show that borrowers with an average-priced home could end up paying as much as £347 a month more if they lapse on to their lender's SVR - that's over £4,000 a year.
|Average UK house price*||Deposit||Mortgage amount|
|Cheapest two-year fixed-rate deal by initial rate||Initial rate||SVR||APRC***||Fees|
|Cheapest five-year fixed-rate deal by initial rate||Initial rate||SVR||APRC***||Fees|
Notes: *Average UK property price according to Land Registry data from July 2018. **Links in these tables take you to Which? Money Compare, the Which? mortgage comparison site, where you can find out more about each product. ***The APRC is the average interest rate over the whole term of the mortgage (25 years in the above examples).
Mortgage payments on an average-priced home in London
In London, the differences are even greater. Borrowers here could see their monthly payments increase by as much as £727 when they pass on to their lender's SVR.
|Average London house price||Deposit||Mortgage amount|
|Cheapest two-year fixed deal by initial rate||Initial rate||SVR||APRC||Fees|
|Cheapest five-year fixed deal by initial rate||Initial rate||SVR||APRC||Fees|
|Coventry Building Society||2.35%||4.74%||3.8%||£999|
What do these figures tell us?
This data shows that the gap between initial rates and SVRs might be even bigger than you'd think.
In the examples above, the differences in repayments are most significant in the Clydesdale deals. This is because Clydesdale offers market-leading initial rates but its 5.2% SVR is even higher than the 5.11% industry average, meaning that if you stuck with the lender for the full term without moving onto a new deal, you'd pay far more than you would with First Direct or Coventry.
Essentially, this means that if you base your choice of mortgage on initial rate, you need to be proactive about remortgaging when the fixed term ends.
Being on the ball can save you thousands in the long run, and it's never too early to plan. In fact, it's possible to agree a new mortgage as early as six months before the