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Inertia costs borrowers on SVR £10bn a year

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Written by: Paula John
02/06/2017
Almost two million borrowers currently paying their lender’s standard variable rates could save up to £3,242 a year by remortgaging to a more competitive deal.

The Mortgage Saver review, carried out by online mortgage broker Trussle, found that the average standard variable rate (SVR) charged by the big six lenders – Lloyds, Nationwide, Santander, RBS, Barclays, and HSBC – who collectively account for 69% of all mortgage lending, was around 2.5% higher than the cheapest two-year fixed rate.

Almost three million borrowers are currently paying their lender’s SVR. Around one million of those are ‘mortgage prisoners’, stuck on SVR and unable to remortgage since the introduction of stricter borrowing rules mean they no longer meet the required criteria to switch loan.

However, a further two million sitting on their lender’s SVR could remortgage immediately to a new deal. The Mortgage Saver Review calculates that they are overpaying an average of £272.50 for every month they delay remortgaging.

Lack of awareness plays a large part – the research revealed that 65% of UK mortgage borrowers are not aware that lenders’ SVRs are typically more expensive than fixed rates, while 24% have no idea what SVR stands for.

What’s more, 48% of borrowers don’t know when their fixed rate is due to come to an end, which is significant given that, if they don’t arrange to move onto a new deal, borrowers simply default to their lender’s SVR at the end of a fixed rate term or other special arrangement.

Inertia is also a key factor, sometimes driven by poor past experience. 41% of those surveyed recalled the experience of getting their first mortgage negatively, and 8% said they actually cried during the process.

Ishaan Malhi, CEO and founder of Trussle, said: “The results of this inaugural Mortgage Saver Review highlight the need for the mortgage sector to better educate borrowers and simplify a raft of unfair practices. Borrowers are being put at a huge disadvantage by not understanding the implications of lapsing onto their lender’s SVR. This costs UK homeowners an alarming £10 billion a year in interest payments.

“The industry, its regulators, and the UK government can address these challenges by working together. Potential solutions could be to agree a reasonable upper limit on SVRs, and a system where lenders are not only obliged to warn their mortgage customers well in advance of their fixed rate coming to an end, but also to confirm receipt of this notification.”

Paula Higgins, chief executive of the property advice website HomeOwners Alliance, said: “This study confirms that more needs to be done to educate homeowners on the value of remortgaging at the right time to avoid ending up on a more expensive SVR. There is an onus on lenders to not take advantage of homeowners’ switching inertia and instead look to foster an active ongoing client relationship. This includes making greater efforts to alert their customers to more suitable deals and the financial benefits of remortgaging at the right time.”

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