LIGHTEN THE LOAD
You could be paying a year too much on your mortgage. Here’s how to...
MILLIONS of homeowners are throwing away as much as £5,000 a year in mortgage interest payments by failing to switch to a cheaper deal – with many borrowers blaming their apathy on a nightmare experience when obtaining the initial loan.
Most took out a cheap fixed, tracker or discounted loan, but then failed to move to another low rate at the end of their special deal. This means they are now languishing on their lender’s standard variable rate – the default rate that is usually far higher.
Research by online mortgage broker Trussle indicates that two thirds of borrowers have nimbly switched energy supplier with a typical saving of £200 a year. But just one in three has transferred a home loan, which can save far more money.
Ishaan Malhi, founder of Trussle, says: ‘Two million borrowers are paying thousands of pounds more than they need to every year, and face an inertia tax of £408 for every month they delay remortgaging.’
The average standard variable rate is 4.8 per cent, while two-year fixes are available at just 1 per cent. On the average £131,000 mortgage this means paying £4,920 more a year.
The only advantage of being on one of these default rates is there are no early redemption penalties – so no excuses for staying put.
Some standard variable rates are not excessive. First Direct charged on average 3.69 per cent, Barclays 3.71 per cent, and HSBC and Nationwide Building Society both 3.75 per cent from August 2016 to January 2017. But some regional lenders charge far more. Kent Reliance and Newcastle and Marsden building societies charged 5.87, 5.99 and 5.8 per cent respectively over the same period.
The more equity borrowers have in a property the more options they have for switching. The best deals are normally open to those with equity of at least 20 per cent. Find the best deals either by using a mortgage broker (find one at unbiased. org.uk) or a comparison website.
Online mortgage broker Dwell last week launched a calculator (universalmortgagecalculator.com) to highlight the lender willing to lend the most money based on eligibility as well as affordability. The calculator shows that the amount that can be borrowed will vary by as much as £150,000, depending on the lender.
CAUSE OF APATHY
MORE than one in ten borrowers surveyed by Trussle said the stress of their first loan application made them reluctant to tackle the process again. Jargon and a dearth of information contributed to their lethargy. But a lack of timely communication from lenders was also to blame.
Malhi says: ‘Our research shows people want more alerts towards the end of their special rate period so they can prepare to switch. Many lenders do this, but it tends to be just one letter in the post.’