You are here: Home - Mortgages - Remortgage - News -

Could you remortgage and give yourself a £2k income boost?

Written by: Christina Hoghton
By remortgaging and switching away from your lender's standard variable rate to a more competitive deal, homeowners could give themselves a ‘pay rise’ of more than £2,000 per year.

Homeowners could save a combined £3.9bn a year by switching products, the equivalent of a significant after-tax pay rise, according to research by Legal and General Mortgage Club.

The mortgage distributor said there is a price to pay for complacency when borrowers could effectively boost their disposable income by remortgaging.

How much can you save?

Swapping existing mortgages from the Standard Variable Rate (SVR) to a more competitive product could save the average homeowner over £2,000 a year, the equivalent of a 7.2% jump in salary.

Homeowners on a competitive two-year fixed rate deal currently available on the market could save £172 a month, or £2,062 over a year, compared to borrowers who remain on a lender’s SVR, said Legal and General.

With 1.9m homeowners currently caught on their lender’s variable rate (1 in 6 mortgage borrowers), a huge portion of the UK could save a substantial amount of money simply by searching the market for alternative offers. For homeowners on SVRs across the UK, this equates to a staggering £3.9bn a year.

But L&G said borrowers fall into different camps when it comes to switching, and it can seriously impact their pocket. Below is the firm’s rundown of the different attitudes to remortgaging and what they can mean for borrowers’ finances:

1: The continually complacent

Despite speculation of a rate rise looming, and warnings that headline low rates won’t be around forever, these borrowers stick with their current lender’s SVR. They are satisfied with their deal, and do not anticipate an interest rate rise impacting their monthly payments of £793. However, by not reviewing their deal, they risk paying an extra £682 per year every time the SVR increases by 0.5%.

2: The flexible financer

Listening to a mortgage broker’s advice, these borrowers rethink their current deal – their lender’s SVR of 4.74%. As a result, they switch to a two-year fix from a high street lender. This has a rate of 1.69% and a fee of £999. Despite the initial cost, their monthly interest payment is reduced to £630, saving them £221 each month and £5,309 over the fixed rate term.

3: The reluctant reviewer

Currently on an SVR from their lender, these borrowers are likely to wait until 2017 before deciding to shop around. By then, banks may well be pricing higher rates into their products. While they have saved money by eventually switching from an SVR, they do not save as much as those borrowers who acted earlier. If their lender’s SVR were to increase by 0.5% before late 2017, this borrower would only reduce their monthly payments by £184 a month and £4,413 over the fixed term.

Jeremy Duncombe, director of Legal & General Mortgage Club, said: “Today’s borrowers are missing out on some great opportunities to save, mainly due to complacency. Simply switching deals to a more competitive rate could make a significant difference to their everyday life, particularly at a time when wage growth is relatively low.

“Now is the perfect time to review current deals, especially for those on an SVR or coming to the end of a mortgage term. Homeowners should contact an adviser to explore the idea of swapping to a different mortgage deal, which could give them the equivalent of a hefty pay rise. Those who act now may see significant benefits in the years to come, as they’ll able to take advantage of current interest rates while they are still at an all-time low.”

Related Posts

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Unfamiliar banks woo savers with top rates…is your money safe?

If you’ve been keeping an eye on the savings best buy tables, you’ll have noticed some unfamiliar names lu...

What the base rate rise means for you

The Bank of England has raised the base rate by 0.25% to 0.5% – following on from the increase from 0.1% to ...

How to get help with your energy bills

The rise in the energy price cap from April will mean millions of households will pay hundreds of pounds a yea...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week