Homeowners who fail to remortgage pay thousands extra in interest every year
Homeowners who fail to switch mortgage deal face paying thousands of pounds more in interest every year.
New research by Citizens Advice found two-fifths of mortgage holders didn't remortgage after their fixed term, resulting in considerably higher bills.
Here, Which? explains the significance of switching mortgage while offering suggestions about the very best rates now available.
Homeowners failing to switch deal
Research by Citizens Advice found 42% of house owners whose introductory periods have ended because the start of pandemic have taken no action to switch their mortgage to a cheaper rate.
The charity says this means many people is going to be paying an enormous penalty for sticking with their current provider.
It has additionally raised concerns that vulnerable people and people impacted by Covid-19 might find it harder to change than other homeowners, and has called around the regulator to assist.
Alistair Cromwell of Citizens Advice says: ‘As the pandemic continues to hurt our finances, employment, health insurance and relationships, it's more essential than ever that customers aren't penalised because of not switching.
‘As Covid support schemes ended, tackling the loyalty penalty is an excellent method that regulators can safeguard consumers from unfair and unnecessary costs.’
Why could it be vital that you remortgage?
The vast majority of homeowners have fixed-rate mortgages. These deals allow you to lock in your type of loan for any set term (usually two or five years).
At no more that term, you’ll have to remortgage to another deal, or you’ll be moved on for your lender’s standard variable rate (SVR).
The SVR is nearly always significantly more expensive than the fixed interest rate you’ll have been paying, and the lender can change it at any time.
The graph below gives a good example of how average SVRs rival fixed-rate deals.
How a lot more am i going to pay on my small lender’s SVR?
To provide a better picture of the additional price of lapsing onto your lender’s SVR, we’ve analysed the costs of some of the cheapest mortgages currently on the market.
The table below shows the initial rate around the cheapest two-year fix now available at 60%, 75% and 90% loan-to-value, alongside what that same mortgage would cost at the end of the two-year promotional period should you failed to switch.
These figures derive from borrowing lb200,000 on a 25-year mortgage.
| Loan-to-value | Initial rate (first two years) | SVR (after two years) | Monthly repayment (first couple of years) | Monthly repayment (after two years) | Difference per month |
| 60% | 1.06% | 4.34% | lb759 | lb1,062 | lb303 |
| 75% | 1.19% | 5.14% | lb771 | lb1,150 | lb379 |
| 90% | 2.40% | 4.35% | lb887 | lb1,079 | lb192 |
As you can observe, a homeowner on a 60% mortgage may find themselves lb303 per month – or lb3,636 annually – worse off, simply by failing to switch after two years.
Best remortgaging rates for April 2021
If you are planning to remortgage this season, the good news is that rates are really low at the moment.
The interactive chart below shows the least expensive initial rates now available on two and five-year fixes.
Simply hover your cursor over the bars below to compare rates.
How to remortgage at the end of your deal
You can usually lock in a new deal 6 months before the end of your current one, so it’s worth looking around well in advance of the mortgage expiring.
Your lender will write to you a few months before the fixed term ends, however, you may wish to get in contact yourself so that you can compare deals sooner.
If you switch to another mortgage with the same lender, this is known as an item transfer. Staying with the same bank is likely to be quicker and easier, but you could possibly look for a far better rate from a competitor.
Remortgaging can help you save a lot of money, however, you must only switch after your fixed term. If you switch earlier, you may need to pay an earlier repayment charge to your lender, which can run to thousands of pounds.
Covid-19 support for mortgage holders
If you’re struggling to pay your mortgage because of the pandemic, there are several support measures still available.
It’s no more possible to apply for a new formal payment holiday in your mortgage, but lenders are now offering tailored help.
This assistance can include measures for example temporarily pausing or reducing payments, or changing the word of the mortgage.
If you’re having financial difficulties, you need to contact your lender as soon as possible to discuss which measures may be open to you.
