Fixed borrowers pay 2.5% extra on ‘big six’ lender SVRs

Money-Cash-Coins-GBP-Pounds-UK-700x450.jpg

Borrowers with the six largest mortgage lenders would see their SVR jump 2.5 per cent when coming off a two-year fixed rate, according to Trussle research.

The extra SVR boost equates to households paying an extra £3,242 a year with Lloyds, Nationwide, Santander, RBS, Barclays, and HSBC, which collectively serve 69 per cent of the market.

Trussle commissioned research to compare average SVRs and two-year-fixed rates from 76 lenders over a six-month period.

Three million households are on lender SVRs, with one million being mortgage prisoners.

The two million that are not mortgage prisoners represent 18 per cent of all mortgagors, and are collectively overpaying lenders by £9.8bn in interest payments every year.

Trussle says inertia is the main reason borrowers move onto SVRs.

Around 65 per cent of mortgagors do not know SVR rates are normally worse than fixed rates.

One in four (24 per cent) do not know what ‘SVR’ stands for.

Trussle chief executive Ishaan Malhi says: “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.

“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.”

HomeOwners Alliance chief executive Paula Higgins says: “This study confirms that more needs to be done to educate homeowners on the value of remortgaging at the right time to avoid ending up on a more expensive SVR.

“There is an onus on lenders to not take advantage of homeowners’ switching inertia and instead look to foster an active ongoing client relationship. This includes making greater efforts to alert their customers to more suitable deals and the financial benefits of remortgaging at the right time.”

A Council of Mortgage Lenders spokesman says: “Lenders write to their customers in advance of any impending rate change, and this provides a trigger for borrowers who do not want to move on to a standard variable rate.

“Some lenders pro-actively offer their customers another discounted rate before they are due to move on to the SVR.  Where borrowers do not take up this option, it is often because they prefer to remortgage instead.

“Some customers may also consciously choose to move to the lender’s SVR.  This may be because they judge their outstanding balance to be too small to be worth remortgaging, or because they want flexibility and do not want to agree to a new mortgage for another fixed period.”