Families stranded on worst mortgage deals pay extra £3k a year

HOMEOWNERS are missing out on savings of £3,000 a year from the mortgage price war – because banks won’t let them have the cheapest deals.

An estimated three million people are paying their bank’s standard mortgage rate, analysis for Money Mail found.

This means they are charged 4.59 per cent on average – five times the 0.89 per cent best rate now on offer.

Many borrowers who try to switch to cheaper offers are being turned away.

Banks are rejecting applications if customers are not wealthy enough, do not have a big enough deposit to put down, have the wrong type of loan – or are simply too late in applying.

They are being locked out of a mortgage price war that started late last month, when Yorkshire Building Society launched a record low 0.89 per cent variable loan.

That deal, like many of the best offers, is only available to borrowers who have at least 35 per cent equity in their home, or a 35 per cent deposit.

Other banks are offering deals for as little as eight days and are having to turn away applications.

Banks are routinely denying the top deals to customers who have interest-only loans, while some are told that money struggles have left marks on their credit records and so they cannot have a loan.

Critics said it was wrong for banks to deny these savings to less wealthy borrowers who could do with a boost, and urged lenders to make cheap deals available to all.

If the average customer on a standard variable mortgage was allowed to switch to the best rate in the market they would save £283 a month or £3,396 a year. The figures are based on a typical £150,000 mortgage.

Andrew Montlake, of mortgage broker Coreco, said: ‘Home loan rates have plummeted recently but the people who have benefited most are those with big deposits or lots of equity in their home. It’s not fair that there is such a gap in the rates on offer to borrowers with large and small deposits.’

Nearly a third of all mortgage borrowers are on their lender’s standard variable rate, according to an analysis for Money Mail by Virgin Money.

Borrowers go onto the SVR when they come to the end of a fixed or tracker deal. Typically, SVRs are higher. In the past month lenders have made a flurry of rate cuts to lure customers whose deals at rival firms are about to end.

The price war has partly been driven by a clampdown on buy-tolet by City watchdogs, meaning banks are lending less to landlords and want to compensate by attracting homeowners.

Some deals they are using to lure customers are so cheap that lenders are pulling them because of high demand. They set aside a certain amount of money to offer at their best rates and when that dries up they take the deal off the market. Atom Bank pulled its 1.29 per cent deal after only eight days.

Experts say banks are also reserving the best deals for wealthy borrowers to manage demand. Most lenders see customers with larger deposits as less risky.

Despite the rate war, research shows costs are actually rising for borrowers with smaller deposits.

Six months ago the average twoyear fixed rate for borrowers with a 5 per cent deposit was 3.97 per cent. Today, it is 4.2 per cent, said data firm Moneyfacts.