Borrowers that fail to secure a new mortgage deal when their fixed term lapses are effectively being penalised for their loyalty…
Failing to switch mortgage deals when their fixed-rate term comes to an end can cost homeowners an additional £2,600 per year – a significant £222 extra every month, as they move to their lender’s standard variable rate (SVR), according to research by online mortgage broker Trussle. There are currently two million borrowers on their lenders’ SVR, who could collectively save £5bn per year by switching to a better deal.
Given the savings to be made by switching, are borrowers genuinely loyal to their lender or is there another reason that they are sitting on their lender’s SVR? Could it be fear of navigating the complex mortgage market or can they just not be bothered?
According to Trussle’s research, homeowners are certainly not choosing the standard variable rate; they simply do not realise that it is time to switch until it is too late. One in five borrowers stated that they could not remember the last time their mortgage lender contacted them about their mortgage, and one in 10 said their lender or broker did not do enough to keep them updated with their mortgage situation.
Trussle calls for a mortgage switch guarantee
It is clear that lenders need to do more to assist borrowers when it comes to managing their mortgage deal. A massive 50% of borrowers surveyed said that they did not understand the terms included in letters from their lender and stopped reading when they reached a section that they did not understand.
Trussle’s mortgage switch guarantee is a set of proposals that it hopes will help borrowers with the process of switching mortgages. Within these, Trussle wants mandatory letters to be sent to borrowers from their lenders exactly three months before the end of their mortgage term. In case the letter is missed, Trussle is also suggesting that an electronic communication is sent as a back-up, to ensure the message reaches the intended recipient.
Market can be intimidating
A more proactive approach by lenders will help a significant number of borrowers act to switch deals before their mortgage moves to a standard variable rate. The financial benefits are obvious, but these simple steps to provide additional support for mortgage management will alleviate the emotional stress and worry of many borrowers that find the mortgage market complicated and intimidating.
Paula Higgins, chief executive of Homeowners Alliance, says: “Unquestionably, changes must be made in the mortgage market.
“Consumers have seen huge upheaval in the mortgage market over the last ten years and with the hoops they have to jump through to meet affordability criteria now it’s not surprising many would be confused by or fearful of getting a new deal.”
The mortgage industry must address this by making switching to a better deal as straightforward and safe as possible.”