Millions of homeowners are paying more than necessary for their home loans because they have not remortgaged onto more competitive rates, according to the online broker Trussle.
About 3m households are on their lender’s standard variable rate (SVR), to which all loans revert at the end of fixed-rate or discounted deals
A third of those are “mortgage prisoners”, who cannot switch because they do not meet tougher affordability rules, introduced in 2014.
However, Trussle said about 2m homeowners could switch immediately — and shave a chunk off their monthly repayments.
The cost of inertia
The broker compared the cost of an SVR of 3.91% — the average offered by the big six high street lenders — with a two-year fix at 1.41%. It found that on a capital repayment loan of £130,000, the annual cost of the SVR would be more than £3,200 higher.
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Jonathan Harris of the broker Anderson Harris said: “Lenders undoubtedly benefit from customer inertia in not remortgaging when they come off their original headline rate. They make a significant profit.”
Mortgage price war
Lenders have slashed rates to lure borrowers, launching two-year deals at less than 1% and five-year loans at about 2%.
The average SVR is now 4.59%, nearly twice the typical two-year fix of 2.3%, according to Moneyfacts. The average five-year fix is 2.86%.
Top tip
If your mortgage rate is higher than the return on your cash savings, consider overpaying on your loan. This will reduce the total amount of interest paid over the course of the mortgage.
Most lenders allow 10% of the outstanding loan to be paid down each year without penalty.