Borrowers Drift out of Mortgage Deals Straight into Higher Repayments
The number of mortgage holders on the Standard Variable Rate (SVR) mortgage has increased to 46% during the UK lockdown period, up 2% from March according to credit reporting company Experian. This means more borrowers are drifting out of mortgage deals and onto the standard rate oﬀered by their lender, potentially costing them more each month with increased interest rates and higher mortgage repayments.
A mortgage is typically the largest outstanding loan in a household, and one of the largest monthly outgoing costs, so it is surprising to see data which indicates many borrowers are ignoring the health of their loans. Mortgage interest rates are at historical lows in the UK, but with rising inflation, the Governor of the Bank of England proved true to his word in December 2021 by raising interest rates to 0.25%, the first rise in more than 3 years. This means it has never been more important to review your mortgage and consider mortgage arrangements which best suit your finances in the coming years
The analysis by Experian found that a homeowner with £150,000 20-year mortgage loan on a lender’s typical SVR rate of 4.4% will have a monthly repayment of £944.
The same mortgage on a typical 2-year fixed rate mortgage deal of 1.14% would have a monthly repayment of £699, representing a saving of £245 a month. Taking into account the arrangement fee of £999, the borrower would save £4,881 over the two-year mortgage oﬀer term.
Why do people drift onto their lender’s Standard Variable Rate?
Moving a mortgage is often more complicated than switching other debt like a credit card. Borrowers are reluctant to move their mortgage because their financial situation has changed. An increase in the use of credit cards and loans has been typical for many households during Covid, and lenders are aware of the challenges many people have faced. Many people switched from an employed job to working on a self-employed basis during the pandemic, and they are nervous of how a lender will view their new employment status. A good mortgage adviser can look at your situation independently of a mortgage lender and will able to identify any issues that may arise in a mortgage application or, more likely, provide reassurance where there are in fact no diﬃcult hurdles over which to jump.
In some cases, reluctance to move a mortgage can simply be because life is busy and it is hard to be on top of everything. When a mortgage deal ends, the debt simply rolls on to the Standard Variable Rate. An increased mortgage repayment may be irritating, but it doesn’t feel as painful as incurring a fine, which you would likely get if you missed a credit card payment. When we can’t fix a problem with one phone call, and we know it will require paperwork and time, it is easier to put oﬀ addressing the issue. But a good mortgage adviser will find you the most suitable mortgage deal for your circumstances, and they will also have a team of support staﬀ to help this process go as smoothly and as easily as possible, making it fast and straightforward to organise. Putting in a little work in the short term will mean savings in the longer term.
How do I move my mortgage oﬀ my lender’s Standard Variable Rate?
The next step is to speak to an independent mortgage adviser, who will be able to search all the lenders in the UK for the best interest rate and mortgage product to suit your needs. If you go back to your existing lender for a new mortgage deal, they will only be able to oﬀer you a product from their own mortgage range, which may be less competitive.
There are a number of things you can do to prepare before you speak to a mortgage adviser. You will be asked to provide three months bank statements, so it is a good idea to keep within your budget during this time frame and avoid any significant spending or large purchases. When you apply for a new mortgage, a credit check will be run against your name and property address in order to give you a credit score. Make sure you don’t miss a card or loan repayment or household bills leading up to check, as late payments will reduce your credit score. The most important thing is to be open and honest with your mortgage adviser. They work with mortgage lender underwriters every day and will guide you through the process of securing a new loan, even if you have more complicated circumstances.
At Furnley House we have a team of highly skilled mortgage advisers and experienced support staﬀ who will guide you through the remortgage process. To find out more call Furnley House on 0116 269 6311 or email firstname.lastname@example.org
All information correct at the time of writing.