Recent research has shown that the majority (53 per cent) of customers who roll their existing mortgage onto a Standard Variable Rate (SVR), don’t remortgage for more than 10 years.
An analysis of the mortgage market by the Citizens Advice Bureau (CAB) revealed one in 10 borrowers face a ‘cost penalty’ of more than £1,000 a year if they remain on a SVR at the end of their fixed rate term, with first-time buyers particularly likely to be hit by higher payments.
A failure to switch to a better rate at the end of an initial term can be due to the stricter affordability criteria introduced by the Bank of England in 2014 preventing some borrowers from remortgaging – the so-called ‘mortgage prisoners’.
But Citizens Advice found it can also be due to a lack of consumer knowledge and advice regarding the ability to switch to a better product.
The gap between fixed rates and standard variable rates has grown significantly in recent years, and in March this year the consumer research website Moneyfacts, revealed that borrowers are likely to see the interest rate on their mortgage go up by 1.5 per cent when their two-year fixed rate matures.
The regulator is currently investigating whether mortgage customers are able to make informed decisions about the options available to them as part of a market study, with a final report set to be published in early 2018.
Don’t let yourself get caught out by ending up on a Variable Rate, simply from doing nothing.
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