The past few months have been tough for all of us as the pandemic has made an impact on every aspect of our lives.
Our finances in particular have taken a hit as incomes have dropped drastically, meaning it is vital to ensure every penny we do have is spent wisely.
While most of us are pretty good at switching and changing things like our energy supplier, there is one key bill, typically the biggest, where we could be missing out on big savings.
Around 800,000 homeowners are languishing on their lender’s standard variable rate – and paying way over the odds for their loans.
These are the default loans that borrowers automatically get put on to when a deal ends and they don’t secure another loan at a competitive rate.
Like any financial product, there are no rewards for loyalty and if you stick with a lender without comparing what is available elsewhere you will get stung with higher rates.
Standard variable rates should only be used as a last resort, by borrowers who may have financial issues that could affect their ability to remortgage.
Research from comparison site Compare the Market has found that those hundreds of thousands of borrowers could be paying over £2,300 a year more than those on an average two-year fixed deal.
That adds up to a hefty £2billion being spent needlessly.
The average mortgage debt in the UK is roughly £135,000, according to the Bank of England. And the average standard variable rate is 4.09%, compared to 1.42% on two-year fixed mortgage deals.
On a £135,000 loan, the monthly repayments at 1.42% are £465; but at 4.09% it is £658. That’s a difference of almost £200 – £2,316 extra over a year.
Mark Gordon, director of money at comparethemarket.com, said: “Languishing on a lender’s standard variable rate mortgage is likely to cost you thousands of pounds more than you need to pay.
“By remortgaging, the money could instead be put into savings or put away for any emergencies or to build up rainy day funds.
“While there are fewer mortgage products available on the market than usual at the moment, with the housing market slowly restarting again and physical property valuations able to take place once more, there are still plenty of good rates to choose from by looking around online.”
Here’s our guide to help people find a better mortgage deal...
Give yourself enough time
Currently, there isn’t a standardised process that mortgage lenders follow to let you know when you are about to slip on to the standard variable rate from your initial fixed-rate term.
Make sure you know if your deal is about to end – speak to your lender. Also remember that you should review your mortgage three to six months before the end of your initial period.
Consider the true cost
Many of us will be lured in by the cheapest interest rate when comparing mortgage deals. However, taking the true cost of a mortgage into account is really important so you know exactly how much you will pay over the initial term – including any fees.
Shop around
Staying with your lender may feel the easiest thing to do when it’s time to remortgage. But lapsing on to the SVR can be very costly.
Online mortgage broker Trussle has a free monitoring service that alerts borrowers when a better deal goes on the market. This lets you know when you could save money by switching.
Talk openly
It’s important to talk to a mortgage broker to ensure you find the best deal for your circumstances.
If you decide to switch products with your existing lender, talk to your provider about the terms of your mortgage and repayment costs.
