Are you paying £3,500 a year extra in mortgage costs?
Homeowners are being stung with thousands of pounds of extra mortgage costs after moving over to default rates, research has shown.
In some cases, investment platform AJ Bell found that borrowers can pay up to £5,395 a year in extra costs on a £200,000 loan after their fixed-rate mortgage comes to an end. This sees them automatically moved over to a default rate, which can be more than three times the rate that was previously paid.
These co-called ‘standard variable rates’ move in line with changes in the Bank of England base rate. This has resulted in monthly mortgage repayments ratcheting up, following interest rate hikes.
“The Financial Conduct Authority has recently announced proposals to help the 140,000 ‘mortgage prisoners’ trapped on high rates and unable to move to a cheaper deal due to stricter lending arrangements.
“But there are still 1.8 million people in the UK on standard variable rates, who are being penalised for their loyalty. Some don’t realise their fixed-rate deal has ended, while others haven’t got around to sorting out a new deal, and likely don’t realise how much extra it’s costing them,” explained Laura Suter, personal finance analyst at AJ Bell.
Counting the costs of default mortgage rates
In the table below, AJ Bell has outlined how much extra borrowers pay once they move over to a default mortgage rate.
|Lender||Two-year fixed rate||Standard Variable Rate||Additional monthly cost||Additional annual cost|
|Leeds Building Society||1.62%||5.69%||£449.56||£5,394.72|
Source: AJ Bell – based on the best two-year fix on a £200,000 loan at 80% loan-to-value.