More than 4 million people are paying too much for their mortgages by relying on standard variable rates. This is according to L&C Mortgages, the UK’s largest fee-free mortgage broker.
Standard variable rates are typically higher than other mortgage rates on the market, which means homeowners could be overspending by an average of £216 a month, equivalent to nearly £2,600 a year. If interest rates rise in the future, which the Bank of England has hinted is a possibility, then homeowners could see their payment increase even further.
L&C examined a range of data to establish the type of mortgage deals homeowners are on, how much they owe, and the length of their mortgage terms. Using this information, they identified a potentially better rate and worked out the monthly mortgage savings that could be made.
David Hollingworth of L&C Mortgages said: “Not only have we found that more than a third (36%) of homeowners are on their bank or building society’s standard variable rate, but 3.4m people don’t know their mortgage rate. They could potentially save hundreds or even thousands of pounds a year by re-mortgaging to a new deal’’.
The research also looked regionally at how much homeowners are paying on their mortgages. It found households in the capital overspend by the most, typically paying £266 a month more than necessary. Those in the North pay £201 more than needed, while households in the Midlands and the south of England could save £222 a month if they were on a different deal.
Worryingly, the research revealed that a further 1.1m households are effectively throwing away a collective £2.78bn by sitting on the wrong mortgage deal. The average pre-tax income for households with a mortgage is £45,141, with households paying an average of £597 per month. Over a third of homeowners said they can’t imagine a time not having to pay their mortgage, yet over half of UK homeowners (58%) have never re-mortgaged to save money.
David Hollingworth added: “A mortgage is likely to be someone’s biggest monthly outgoing, and in only a few easy steps they could find a better deal. It’s crucial that homeowners regularly review their mortgage, to see how their rate stacks up against the record low rates that alternative deals currently offer”.