"The industry, its regulators, and the UK government can address these challenges by working together"
The research is the first of its kind to compare average SVRs and two-year-fixed rates from 76 lenders over a six-month period. It revealed that borrowers with Lloyds, Nationwide, Santander, RBS, Barclays, and HSBC, which collectively serve 69%3 of the market, would see their monthly interest rate jump by an average of 2.5% when automatically transferred from a leading two-year fixed rate to an SVR at the end of their fixed period.
A market-wide issue
While most of the UK’s 11.1 million4 mortgage borrowers do successfully remortgage before being moved to a SVR, a vast number fail to do so. Of the three million households currently on a lender’s SVR, around one million5 are ‘mortgage prisoners’, unable to switch, as the introduction of stricter borrowing rules means they’re failing to meet the criteria for a new mortgage. However, close to two million people on SVRs could switch immediately. This group constitutes 18% of the mortgage borrowing population, and they are collectively overpaying lenders by £9.8 billion6 in interest payments every year.
A ‘switching inertia’ crisis
The research 7 found that one of the main reasons so many people languish on SVRs is due to lack of awareness among borrowers. A staggering two thirds (65%) of UK mortgage holders don’t know that a lender’s SVR is typically worse value than a fixed rate, while one in four (24%) have no idea what ‘SVR’ even stands for.
Equally alarming, almost half (48%) of UK mortgage holders don’t know when their fixed rate period comes to an end. Delaying remortgaging by just a month would cost £272.50 for a borrower at one of the UK’s top six lenders.
Another factor contributing to this switching inertia is the negative experience so many people have when securing their first mortgage – which in turn stops people from proactively managing their loan. Two in five (41%) of the borrowers we spoke to in the study recalled the experience of getting their first mortgage negatively and one in ten (8%) even admit to crying during the process.
Ishaan Malhi, CEO and founder of Trussle said: “The results of this inaugural Mortgage Saver Review highlight the need for the mortgage sector to better educate borrowers and simplify a raft of unfair practices. Borrowers are being put at a huge disadvantage by not understanding the implications of lapsing onto their lender’s Standard Variable Rate. This costs UK homeowners an alarming £10 billion a year in interest payments.
The industry, its regulators, and the UK government can address these challenges by working together. Potential solutions could be to agree a reasonable upper limit on SVRs, and a system where lenders are not only obliged to warn their mortgage customers well in advance of their fixed rate coming to an end, but also to confirm receipt of this notification.”
