Are you being stung by a mortgage laziness penalty? Borrowers who fail to remortgage pay £400 a year too much

Mortgage borrowers who are loyal to their lender are paying hundreds of pounds more than they would if they remortgage at the end of their deal.

Consumer watchdog Citizens Advice has slammed banks and building societies for not being upfront with homeowners about how much money they could save if they switched to a new deal instead of rolling onto their lender's standard variable rate.

According to the body customers are paying around £400 extra a year if they fail to remortgage - though the actual amount varies depending on the deal you were on and the SVR charged by your lender.

Customers are paying around £400 extra a year if they fail to remortgage

The research found that people who remain on the standard rate after a two-year fixed term mortgage deal face an average loyalty penalty of £439 a year.

The charity calculated that 1.2million people would be better off if they switched to a new deal - with one in 10 paying over £1,000 a year extra by staying on the standard variable rate.

First-time buyers, who typically have more debt and more time left on their mortgage, face paying an extra £1,359 a year once their two-year fixed deal expires.

The national charity also said older and poorer mortgage holders are more likely to be hit by a loyalty penalty.

Citizens Advice chief executive, Gillian Guy, said: 'Buying a home is a major life decision and borrowers taking out their first mortgage often spend a great deal of time working out the best option for them.

'Our research shows that many who choose fixed rate mortgage deals face steep price hikes once they expire. But two thirds of borrowers say their lender has never told them they could save money by switching.'

HOW MUCH ARE YOU OVERPAYING? 

Name of provider	Standard variable interest rate	Interest rate on a 2-year fixed deal for typical SVR payer	Loyalty penalty for typical SVR payer
Nationwide Building Society	3.74%	1.59%	£702
Santander	4.49%	1.64%	£666
Barclays	3.74%	2.35%	£459
HSBC	3.69%	1.54%	£441
RBS	3.75%	2.59%	£260
Lloyds	3.74%	2.39%	£186
Source: Citizens Advice

Guy said lenders 'must be more upfront' and called on them to provide their customers with clear information about what could happen to the cost of their loan once the fixed term period ends.

It's not the first time this practice has been challenged - earlier this year mortgage broker Trussle claimed loyal borrowers could save thousands a year by remortgaging.

Ishaan Malhi, Trussle's chief executive, said: 'While most mortgage borrowers understand that they need to consider switching when their initial fixed period comes to an end, so many are failing to do so.

'From our own research, we’ve found that there are a number of causes of this inertia, which the industry could address collectively. This is why we're also calling for industry action in the shape of a mortgage switch guarantee, mirroring the consumer benefits recently implemented in the energy and current account markets.'

For some people - who have less left to pay on their mortgage - it might be cheaper to remain on the standard variable rate, rather than pay fees to take out a new mortgage.

But Citizens Advice calculates that 83 per cent of people currently on a standard variable rate would be better off if they switched to a new deal.

The charity’s report also said there is low awareness of the problem - with 51 per cent of people on expired fixed term mortgages wrongly thinking they pay the same or less than newer customers.

ANALYSIS: WHAT'S GOING ON?

Sarah Davidson of This is Money writes: Customers being penalised for loyalty is high on the political agenda at the moment.

From April this year, insurers have had to start telling existing customers that they could save money if they shop around when their policy is up for renewal.

They've also had to start telling customers what they paid last year and what they'll be paying this year and for customers who have been with the same insurer for four years or more they must include this sentence in a letter: 'You have been with us for a number of years. You may be able to get insurance cover you want at a better price.'

 If you've checked the box that says you don't want your lender to market to you, they're legally not allowed to promote their new deals to you after your mortgage deal ends

The annuity market is about to see similar changes. From March next year, when pension providers write to you at retirement they will have to explain in much more detail how different annuities work and warn you clearly that if you don't get an enhanced annuity, you could get a worse deal.

They'll also have to start telling you not just what annuity rate they'll give you, but also exactly how to shop around to get a better deal.

It's not clear whether the financial watchdog plans to adopt a similar approach for mortgage lenders but they are in the middle of a consultation with the industry and it's likely to be discussed.

The fact that Citizen's Advice has got involved in this debate is important because they have super complainant status with the regulator. This means that if they think customers are being poorly treated, they can force the Financial Conduct Authority to investigate immediately.

This is exactly what happened with payment protection insurance which has resulted in more than £40billion being paid out to customers in compensation following Citizens Advice submitting a super complaint.

The situation is different for mortgages though. Because a mortgage contract is long-term, you actually sign up to terms that say you acknowledge that the cheap introductory rate is only for a fixed period of time and that it's up to you to find another good deal when it ends or simply accept the SVR rate.

Your lender won't necessarily remind you when it's time to switch. Now, sometimes this is because they simply don't have to and they'll receive more interest from you if you aren't proactive in remortgaging.

But - sometimes they're not ALLOWED to. If you've checked the box that says you don't want them to market to you, they're legally not allowed to promote their new deals to you after your mortgage deal ends.

The regulation states that they're allowed to tell you that your deal is coming to an end and at that point they should be outlining your options including remortgaging to a new deal with them, going back to your broker to see if you should go somewhere else or reverting onto their SVR.

If you ignore this, you'll automatically go onto SVR and you'll typically only hear from them once a year when they send you an annual mortgage balance statement.

 

source http://blog.evolutionproperties.co.uk/2017/08/06/are-you-being-stung-by-a-mortgage-laziness-penalty-borrowers-who-fail-to-remortgage-pay-400-a-year-too-much/