04-Mar-2010
A mortgage is likely to be the most significant expense that most of us will face in our lives, and yet a surprising number of people would not be able to say which rate they were currently on. According to recent research by the Post Office, 28% of mortgage holders do not know what interest rate they are paying on their home loan. This amounts to a staggering 3 million UK borrowers who could potentially be paying back their mortgage loan at an uncompetitive rate.
Over a third of borrowers (35%) are currently on their lender's Standard Variable Rate (SVR). Some may be on this rate because in fact they have decided that it is the best decision for the moment. However, at least a third of these SVR borrowers are assuming that the lender's 'default' rate is the best one for them.
The problem is that if you rely on the goodwill of your lender to put you onto the most competitive rate for your circumstances, you are likely to lose out. Banks have absolutely no incentive to make their SVR competitive because it is never available to potential new borrowers. Instead, this is the rate that you will be moved onto when your fixed rate mortgage deal, your discount rate mortgage deal or your stepped rate mortgage deal has come to an end.
Post Office Personal Lending Director, Marco Hughes, said: "Although it might seem that staying on your current SVR is the easiest thing to do, you are much more vulnerable to interest rate rises. Some providers have increased their SVRs quite significantly even though the Bank of England base rate has not moved and as a result many borrowers are seeing their monthly mortgage repayments increase more quickly than they thought.
"If you're thinking about switching mortgage, now is the best time to do it, before rates rise further. With many SVRs at or above 4% there are already better deals to be had out there. Switching mortgage does not have to be a stressful experience and spending a bit of time searching and comparing deals could save you a significant amount of money in the long term."
If you try and move your mortgage to another provider (or to a different product at the same lender), you'll probably be subject to charges for doing this within the introductory period. This is because the bank can only afford to offer you a cheap fixed, discount or stepped rate deal if they can guarantee your business (and those lovely interest payments) for a certain period of time. However, once you are out of this introductory period, you can have your mortgage with whomever you choose, and you (usually) have absolutely no obligation to stick with your current provider. In the world of personal finance, loyalty definitely does not pay.
The first step should be to find out from your lender which interest rate you are currently paying on your mortgage loan, if you do not know already. If you've been with a lender for a few years, don't assume it's the same rate you started on. If you are tied into an existing mortgage deal, find out how long you have left on this deal and make a note to start shopping around several months before it runs out. Whichever stage you are at currently, it makes sense to shop around and see what else is available in the market.
If you'd like to talk through your options with an experienced adviser, simply fill out our short mortgage form and an adviser from the Simply Finance network will be in touch with you shortly to give you no-obligation advice and quotes tailored to your current circumstances.
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