Recent data releases* have shown that mortgage borrowers are unnecessarily paying in the region of a staggering £15.4bn of interest annually by remaining of their lenders SVR (Standard Variable Rate) rather than switching to more competitive remortgage rates and products.
The data revealed that over 2 million borrowers (25% of all borrowers) had fallen into the SVR trap and had subsequently been paying a higher rate for 6 months or longer.
It is estimated that if the average mortgage loan is around £173k and the average rate of interest is 4.39%, then borrowers who have dropped onto an SVR will pay around £7,500 in interest each year. However, by switching onto a more competitive product such as a 75% two year fixed rate deal could save them in excess of £4,500 of annual interest.
More worryingly, analysis has shown that were a customer to remain on their SVR for the full term of a 25 year mortgage, they would pay more than £112k of total interest on their property – around 65% of the original mortgage amount.
Over the last ten years we have seen remortgage activity be consistently low due to rates continually falling. The result, unsurprisingly has been apathy with borrowers when thinking about their finances. However, with rates already beginning to rise we would encourage borrowers to get back on track by first undertaking a review of their mortgage to find a better rate, and then doing so at regular points going forward.
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*Source: Financial Conduct Authority