Homeowners on standard variable rates overpaying by £4,000 a year
The findings indicate homeowners could collectively be paying almost £29bn more than they need. This equates to individual savings of almost £8,000 for borrowers who sign up to a two year fixed rate mortgage.
The report also highlighted the potential additional cost to homeowners should the Bank of England increase the base rate by one per cent. If mortgagors fixed their rate following an increase, they could be £480 a month worse off than fixing now, it said.
The average SVR rate among lenders is 4.82%, whereas a two year fixed rate remortgage can be over 2% lower, including HSBC’s at 2.38%. There are currently 1.9 million borrowers on an SVR who are paying a rate above 3%, and would therefore benefit by switching from an SVR.
These borrowers could save as much as £329 per month (£3,948 annually) by remortgaging, or £15,000 over a 5-year fixed deal. As a whole, homeowners could be paying almost £30bn more than they need.
By moving to a market leading fixed term deal, a borrower could save enough in the first month to cover five weeks of food shopping (an average £58.80 per week) with cash left to spare, fund a one week holiday for four in Lanzarote (£3,132) with the first year’s savings, or save enough over the course of a two-year fixed term to buy a new Peugeot 108 (£7,545).
SVR rates could rise at any time. Borrowers moving to a fixed rate product would be shielded from rising rates during the fixed term.
If the average SVR rate were to rise by one percentage point to 5.82%, monthly payments would increase by £151 a month to £1,608, according to HSBC. Borrowers who moved to a two-year fixed rate would pay £480 less a month (£5,760 annually).
Tracie Pearce, head of mortgages at HSBC said: “Almost two million borrowers have a SVR mortgage rate at over 3 per cent and could therefore benefit from moving off their SVR mortgage to a competitive fixed term deal. A quick call to their lender to find out if they are on a SVR mortgage could not only be the catalyst for families to save a small fortune by switching to a more competitive mortgage, it would also provide certainty for family budgets.”
Rachel Springall, finance expert at Moneyfacts, said: “Confidence is continuing to return to the housing market, and there are many great mortgage deals available right now for borrowers to choose from. Homeowners sitting on a standard variable rate deal could well kick themselves in the long-term if they don’t research the market and move to a more competitive deal before interest rates go up, and it is inevitable they will at some point.”