Many UK homeowners are spending hundreds of pounds more a year on mortgage repayments than they need to, according to new research.
Data compiled by broker L&C has highlighted that many people across the UK may be losing out by potentially being on the wrong type of mortgage deal.
Overall, it is estimated that £2.78 billion is wasted each year by the 1.1 million households who have the wrong mortgage deal. A key factor in this appears to be people not realising when they may be moved on to different types of mortgage deal once their current offers or introductory rates on some products expire.
Some 30 per cent - or 3.4 million homeowners – are not aware of the current interest rate of their mortgage, even though switching to a better deal could see them save an average of more than £2,500 a year.
L&C has calculated that 36 per cent of homeowners are on a Standard Variable Rate (SVR) mortgage, even though the rates on these products are generally higher.
SVR mortgages are at the mercy of changes to the Bank of England’s (BoE's) base rate, which means that if it were to rise from its current all-time historic low of 2.5 per cent, many customers would see their monthly repayments rise – in some cases dramatically, if the BoE rate rise is a significant one.
The data suggests that the typical pre-tax income for households with a mortgage is £45,141, with these homeowners paying an average of £597 per month. By switching to a better deal, UK homeowners could save around £216 each month on average - or over £2,500 annually - yet 58 per cent have never re-mortgaged to save money.
This is despite recent figures suggesting that inflation is at its highest point since June 2014, with energy prices also rising, and the potential for further interest rate rises in the near future.
L&C’s David Hollingworth said it is surprising that so many people are on an SVR mortgage as they are not the cheapest rates available.
This also comes after last year saw Coventry Building Society launch the lowest 10-year fixed-rate mortgage deal in UK history, sparking a ‘mortgage war’ as many lenders followed suit in a bid to attract first-time buyers and home movers with ultra-low fixed rate deals.
Mr Hollingworth noted: “Not only is there a lack of awareness around how much could be saved, but worse still a huge number of people have never even tried to remortgage to get a better deal.
Balancing the options
Breaking down the data on a regional basis, mortgage holders in London were perhaps unsurprisingly paying the most over the odds, at £266 a month, but the Midlands was close behind, with households collectively overspending by an average of £222 a month. In the North, which included Yorkshire and the North East, mortgage customers were found to be paying £201 a month more than they could be.
L&C pointed out that now may be the time to assess monthly outgoings and how the rising cost of living, day to day expenses and energy prices could affect household budgets.
Mr Hollingworth added: “It is hugely concerning to see that people are paying so much more than they should be. On top of this, our research shows that while homeowners believe they are paying too much for their mortgage, they still aren’t taking action to cut their monthly payments.”
It comes after new BoE data revealed that first-time buyers currently have a bigger share of the mortgage market than at any time since records began.
The official figures indicate that 22 per cent of all home loans granted in the third quarter of 2016 were to people buying their first house, which is the largest share tracked by the BoE since it began recording the data in 2007.
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