The price of loyalty to your lender? £400 a year
Being loyal to your lender is a mug’s game, according to new research from Citizens Advice.
The charity found that loyal mortgage holders who don’t switch deal at the end of their fixed term can pay £400 extra a year.
By failing to remortgage you will be automaticaly rolled onto your lender’s standard variable rate (SVR) at the end of a fixed term deal – and these SVRs are invariably higher.
Citizens Advice revealed that people who remain on the standard rate after a two-year fixed term mortgage deal face an average loyalty penalty of £439 a year.
It calculated that 1.2 million people would be better off if they switched to a new deal – with 1 in 10 paying over £1,000 a year extra by staying on the standard variable rate.
Who can save by switching?
First-time buyers, who typically have more debt and more time left on their mortgage, face paying an extra £1,359 a year once their two-year fixed deal expires.
The national charity also said older and poorer mortgage holders are more likely to be hit by a loyalty penalty, and a massive 83% of borrowers could save by remortgaging.
Unfortunately, there is low awareness of the problem, with over half of people (51%) on expired fixed term mortgages wrongly believing they pay the same or less than newer customers.
Citizens Advice chief executive, Gillian Guy, said: “More than a million loyal mortgage customers are being stung with higher interest charges when their fixed deals end.
“Buying a home is a major life decision and borrowers taking out their first mortgage often spend a great deal of time working out the best option for them. Our research shows that many who choose fixed rate mortgage deals face steep price hikes once they expire. But two thirds of borrowers say their lender has never told them they could save money by switching.
“Lenders must be more upfront and provide their customers with clear information about what could happen to the cost of their loan once the fixed term period ends.”