THOUSANDS of homeowners are paying £3,000 a year more than they need to, according to new research.
Experts found that mortgage holders could save up to £257 a month by switching from a standard variable rate (SVR).
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It comes after the Bank of England (BoE) lifted the base rate yet again to 5.25% earlier this month.
The figure is used by high street banks and lenders to set the rates it offers customers on mortgages, as well as on other loans and savings.
If you have a tracker mortgage that follows the base rate, your interest payments generally rise.
But those on an SVR can also see rates go up if their lender decides to pass on the rise.
Those on a fixed deal can land on a SVR when their fix ends.
SVRs do tend to be higher than fixed rates and trackers mortgages.
The payments for this kind of loan could change each month, going up or down depending on the rate.
The bulk of homeowners are on fixed-rate products, although around 1.4million deals will be coming up for renewal in 2023, says the Office for National Statistics (ONS).
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Analysis by comparison site Compare the Market found that UK homeowners on an SVR could save £3,084 a year by switching to a fixed-rate deal.
Instead of being automatically moved or staying on a lender’s SVR once a fixed-term deal ends, borrowers may be able to save by remortgaging, the site said.
According to the latest Moneyfacts’ data, the current average five-year fixed mortgage rate is 6.37%.
In comparison, the average SVR rate is around 7.85%.
It means that homeowners are struggling not only with the rising cost of living but also with increased rates too.
In a bid to help those struggling with higher monthly payments, the government brought in new measures recently.
Compare the Market is now urging homeowners who are either coming to the end of their fixed rate or are already on an SVR to look at their options.
Alex Hasty, director at Compare the Market, said: “We understand it’s a difficult time for many homeowners, as SVRs and fixed-term rates continue to be a lot higher than they were even a year ago.
“Another rate rise from the Bank of England also means many are feeling concerned about how this will impact their mortgage payments further.
“Those soon coming to the end of a fixed rate deal may likely see their monthly repayments go up significantly, even if they’re planning to move onto a new fixed deal.”
Mr Hasty added that for most homeowners, finding a new fixed deal on their mortgage when their current one ends could be a way to secure a “more preferable” interest rate.
It also helps ensure you have a clear idea of your monthly outgoings, he continued.
Although it’s important to note that some people may wish to stick to an SVR and pay more in the short term if they don’t want to be locked into a deal.
This might be the case if they’re looking to move into a house soon or if they think the fixed-rates might drop in the future.
He said: “A mortgage is often a household’s biggest outgoing, so it’s important to compare mortgage products online – checking the available deals now and staying aware of what is happening in the market to help you prepare and save for the future.”
Below we explain more about how to get the best deal on your mortgage.
How to get the best deal on your mortgage
If you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.
But there are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio has changed this could also give you access to better rates than before.
A change to your credit score or a better salary could also help you access better rates.
If you have a fixed rate, you could see higher rates when you come to the end of the current term after 14 Bank rate rises since December 2021.
And if you’re nearing the end of a fixed deal in the next six months it’s worth contacting your broker now to lock in a rate.
If they come down between now and the end of your deal, you can always apply for another rate before you remortgage.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare for you, with most offering free advice to secure you the best deal for you.
Some brokers charge for advice, so ask them first.
It could cost a couple of hundred pounds but it might save you thousands on your mortgage overall.
You’ll also need to factor in fees for the mortgage, though some have no fees at all, or you can add it to the cost of the mortgage, but beware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember, if you decide to remortgage to a new lender you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
It’s possible to avoid new affordability checks by remortgaging to a new deal with your existing lender, providing you don’t want to borrow more or extend your term.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
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