How UK homeowners could save £10bn a year in mortgage interest

Borrowers are being urged to consider switching their mortgage after new research suggests that UK homeowners are paying a combined £10bn more for their mortgages than they need to.

If you haven’t switched your mortgage provider in recent years, you could be paying thousands of pounds too much. That’s the conclusion of new research from mortgage broker Trussle which has found that millions of UK homeowners are paying more than they need to.

Typically, when you take out a new mortgage your initial deal will be a two-, three- or five-year product. When this deal lapses, your lender will generally switch you to its default rate (often its ‘standard variable rate’, SVR) which is often significantly more expensive than the cheapest deals they offer.

Analysis suggests that borrowers with major lenders including Santander, Lloyds, RBS and Barclays would see their interest rate increase by an average of 2.5% when transferred from a leading two-year fixed rate to a standard variable rate.

Some borrowers could see their payments jump even further. For example, Nottingham Building Society currently has a ‘best buy’ two-year fixed at 1.6% but if borrowers were coming to the end of that deal today they would see their payments hiked to the society’s SVR of 5.59%.

Trussle compared the default mortgage rate of 76 lenders with the cheapest two-year fixed-rate deal they currently have available. They found that the average borrower would save £3,240 if they switched to a better deal.

Ishaan Malhi, chief executive of the broker that carried out the research, says: “Borrowers are being put at a huge disadvantage by not understanding the implications of lapsing onto their lender’s standard variable rate [SVR]. We want to see 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.”

Remortgaging "well worth doing to avoid paying excessively high rates"

The research found that almost two million borrowers – around 18% of all borrowers – are on their lender’s SVR and could remortgage immediately. This group are currently overpaying lenders by £9.8bn every year.

Trussle say that these people don’t switch for a combination of several reasons – they may not understand the the basis of different rates; be aware of the best times to consider a re-mortgage, or how to do so; believe that to remortgage at all will be a hassle; or simply not know that one interest rate can be significantly more expensive than another.

Mortgage expert Shaun Church told This Is Money: “Although remortgaging is sometimes viewed as a hassle, it is well worth doing to avoid paying excessively high rates. In a low rate environment, proactive borrowers who swap deals regularly often reap the rewards. 

“However, longer-term fixed-rate products should be considered by those who’d rather not take on the admin of remortgaging regularly and don’t want to worry about falling onto an SVR.”