One of the more alarming statistics I’ve read recently suggests that more than a million homeowners – 1.3m, to be more precise – have allowed their mortgage to lapse to their lender’s standard variable rate (SVR).
According to the price comparison website Money Supermarket, who commissioned the research, this means that collectively UK homeowners are paying around £175m a month more than they could be if they were on a fixed or preferential rate.
Lapsing onto a lender’s SVR is a common pitfall and one that many new clients who come to Oportfolio for help and advice have fallen into, and it’s very common for people to wait until their fixed deal has ended before they act – even though it makes better sense to arrange a new deal a few months before the current one expires.
There are a number of reasons why this tends to happen and it’s often a combination of factors that leave people shelling out way more than they could and should be paying in mortgage repayments:
It’s too much hassle to swap
We hear this a lot, but if all you want to do is swap to a better rate with the same lender then many mortgage providers offer existing borrowers the opportunity to switch without having to provide any paperwork.
Often, all it takes is a simple phone call to the lender to transfer to a more preferential rate. In most cases, the lenders who offer this facility will not treat the transfer as a new mortgage and so no exit penalty is applied.
Even if there is a fee to pay, it may still end up being cheaper in the long run to switch.
I’m worried I might not meet new lending criteria
See above. Your lender may well offer a no-application product transfer to a better rate – in fact, because the cost of attracting new borrowers is relatively high, it’s usually in their interests to make sure existing borrowers have options – which gives you some room for manoeuvre.
If your lender offers the option to transfer your product and you’re sure you would struggle to remortgage with another lender, then this may be the right option for you.
But a word of caution: I’ve met many people who have come to me absolutely convinced beyond any shadow of doubt that they can’t move or remortgage because they won’t meet the lending criteria, only to find that they have actually have options.
So my advice is always to talk to a professional adviser before you commit to a further product with your existing lender. But more on that shortly.
We’re only talking a percentage or two – it’s not that expensive to be on an SVR
Think again. Based on current average figures from Which? (September 2020) the average fixed-rate mortgage is 2.09% and the average SVR mortgage is 3.99%.
Let’s assume you have a £300,000 mortgage with 20 years remaining.
On a fixed rate of 2.09% you’ll be paying £1,530pcm. On the SVR that monthly repayment rises to £1816 – a difference of £286.
If nothing changed over the remaining 20 years of your mortgage term, you’d end up spending £68,640 more on an SVR than you would on a fixed rate.
Unless you have a concrete plan to pay off your mortgage within a relatively short period of time – perhaps through an inheritance – it rarely makes sense to stay on a standard variable rate mortgage.
So, should you just switch to a new product with your existing lender?
The answer to that is maybe, and maybe not.
The fact is that unless you shop around you’ll never know whether the preferential rates you can access with your existing lender through a product transfer represent the best value – and the chances are you won’t always be able to find the best rates anyway.
That’s why I’d always urge people to speak to a professional mortgage adviser. At Oportfolio, for example, we can often find products you won’t find online or on the high street yourself, and our market knowledge means we can match your long- and short-term needs to the most suitable product.
Lenders like new borrowers and, just as businesses like Sky and leading phone companies will have attractive deals to entice new business through the door, so the new customer products offered by mortgage companies are often incentivised accordingly.
In the end, a professional adviser will usually be best placed to determine what your options are and then find the most suitable product to meet your needs now and in the future. If the right deal is to stick with your current lender, then a reputable broker will advise you to do that rather than move.
If you’re coming to the end of your fixed deal or you’ve lapsed onto an SVR, maybe now is the time to get in touch and see what we can do to save you money on your monthly repayments.
All information contained within this article was accurate at the time of publication.
Oportfolio Limited is an appointed representative of Primis Mortgage Network, a trading name of First Complete Limited which is authorised and regulated by the Financial Conduct Authority
Your property may be repossessed if you do not keep up repayments on your mortgage.
Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.