Borrowers pay £2,500 extra a year for sitting on SVRs
Homeowners who lapse onto their lender’s Standard Variable Rate (SVR) are being stung with over £2,500 a year in extra interest, analysis has revealed.
An average homeowner slipping on to their lender’s SVR faced an extra £2,536 a year in interest payments (£211 a month), compared to the provider’s best two-year fix, according to analysis from online mortgage broker Trussle.
Across the UK there are two million borrowers currently on an SVR, who could collectively save £5bn a year by switching, the broker said.
The study looked at 16 UK lenders, and analysed the jump in interest charges from each provider’s best two-year fixed rate deal to their associated SVR.
Of the chosen lenders, there were huge differences between fixed rates and SVRs.
At Leeds Building Society the gap was £3,688.56 a year.
The smallest difference was found at Metro Bank, which charged customers an additional £164 a month, or £1,966 a year when they move onto its SVR from the best two-year deal.
One reason why a borrower may lapse onto an SVR is that they were not aware that it was time to switch until it was too late.
In Trussle’s survey of 2,000 mortgage borrowers, one in five said they could not remember the last time their provider contacted them about their mortgage.
Almost twice as many stated their lender or broker doesn’t do enough to keep them updated.
In addition, half didn’t understand terms included in letters they receive from their lender.
A quarter ignored these terms and only read the remaining parts, while 16% stopped reading completely when they reached a section they didn’t understand.
Ishaan Malhi, CEO and founder of Trussle, said homeowners are being penalised for loyalty and collectively overpaying on interest by billions of pounds every year.
“While lenders are improving the way in which they communicate with customers, more needs to be done to reduce the vast number of people on SVRs.
“As part of our call for a Mortgage Switch Guarantee, a set of proposals we hope will improve the switching process, we are asking that a mandatory letter is sent from lenders to borrowers exactly three months before the end of the initial term, which must be accompanied by electric communication to ensure it’s not missed,” he said.