If that’s you, then you might be on a SVR for various reasons. You may not even be aware you’ve been demoted to the SVR.
Perhaps you’re on a SVR after finishing your introductory fixed, tracker or discounted deal and you’ve just not noticed? Or you’ve clocked the change but not found the time to sort it out?
If that’s you, then we have both negative and positive news.
- Your lender is effectively penalising you for your lack of action (and loyalty). But, heads up…. When it comes to the mortgage industry, loyalty doesn’t always pay.
- By remortgaging, you will probably get a much better rate than what you will be paying with your SVR. Remortgaging isn’t complicated and it may give you the potential to save, literally, thousands of pounds.
Paying the SVR is Likely to be Money Down the Drain
Recent research shows that homeowners are paying thousands of pounds unnecessarily in extra mortgage costs because they’ve allowed themselves to slip onto their lenders’ default rates.
More than one in three of us are. Research shows that 36% of homeowners are still on a standard variable rate mortgage (SVR).
It also shows that 58% have never remortgaged and that 3.4 million households don’t know their current mortgage rate.
If this rings true with you, then this study by investment platform AJ Bell might make you want to take action.
It uncovered that, in some cases, borrowers are paying up to £5,395 a year in extra costs on a £200,000 loan after their fixed-rate mortgage had ended.
This is because the SVR you automatically get moved to can be more than three times the rate they you were paying.
Or to put it another way, if this sum had been invested into a savings vehicle paying out 5% a year for the 25-term of the mortgage, it would have racked up a savings pot of almost £176,500!
The Most Lucrative Reason to Remortgage
Misunderstanding the impact of a SVR on overall finances has repercussions for homeowners but it’s also a worry for society in general.
It’s why the charity Citizens Advice has launched a ‘super-complaint’ with the Competition and Markets Authority (CMA) to campaign for the ‘loyalty penalty’ paid by consumers in the mortgage market to be ended.
Citizens Advice figures show that 1.2 million borrowers are paying a mortgage loyalty penalty of £439 a year based on customers left on their lender’s SVR. They have called for the Financial Conduct Authority (FCA) to do more to protect vulnerable clients.
Morgan Wild, senior policy researcher at Citizens Advice, said: “We want to see more action from the FCA to stop people being stung for their loyalty – particularly those who are potentially vulnerable – although it is a good start that the FCA are taking this seriously, including by looking into requiring providers to contact loyal customers to alert them to better deals.”
Do you have more questions about remortgaging from your SVR or would like some advice on the right product type for your situation? We are happy to help you here.
Still wondering if you are ready to remortgage? We recommend you read our: Remortgaging your home? Speed up the process with our 10-point checklist.