Act now if your home loan deal ends in three months as getting a new deal will take longer amid coronavirus crisis
- Up to 44% of borrowers could be missing out on big savings by failing to switch
- They are likely to be on their provider’s standard variable rate
- But it will take longer to switch as lenders are struggling with huge demand from anxious customers requesting repayment holidays on their loans
- Learn more about how to help people impacted by COVID
Mortgage borrowers coming to the end of a loan deal – or eager to remortgage to get their finances in shape to help them through the coronavirus crisis – should act soon to avoid ending up on a costly standard variable rate.
Getting a new deal will take longer, as lenders are struggling with huge demand from anxious customers requesting repayment holidays on their loans.
Research for The Mail on Sunday suggests almost half of mortgage holders could be missing out on big savings by failing to switch to a better deal.
Remortgaging time: Nearly half of borrowers are likely to be on a standard variable rate
According to analysis by credit reference firm Experian, up to 44 per cent of borrowers are likely to be on their provider’s standard variable rate, when many could be saving thousands of pounds a year by moving lender.
But they will need patience as many banks and building societies are unable to carry out physical valuations on properties due to social distancing demands.
The twin pressures of handling calls from hard-hit borrowers needing a payment holiday and valuation challenges have caused some lenders, such as One Savings Bank and Vida Homeloans, to pause business altogether while others have slapped a cap on the proportion of loan they will lend compared to the value of a home.
Nationwide will only lend 75 per cent of a property’s value to borrowers applying online or via a broker, while Yorkshire Building Society will allow remortgages up to 85 per cent. Others are limiting loans to 60 per cent.
Borrowers whose deals are in the pipeline should check progress with their lender.
In some cases, applications might be delayed if the valuation has not been completed or cannot be carried out remotely using automated systems or so-called ‘desktop’ valuations.
Yorkshire says the valuation issue means it cannot offer loans currently on certain types of home, including new-build flats, those of non-standard construction or if they are worth more than £1million.
The recent cut in Bank Base Rate to 0.1 per cent might encourage borrowers to believe it will not hurt to end up on a lender’s standard variable rate. But analysis by rate scrutineer Moneyfacts shows the average standard variable rate is 4.75 per cent. This is four times the level of some of the best deals on the market.
Many banks and building societies are unable to carry out physical valuations on properties due to social distancing demands
David Hollingworth, of broker London & Country, says: ‘Life goes on and people’s loan deals come to an end. Borrowers should still be reviewing their mortgage and changing to better loans. While buying a home has become nigh on impossible, remortgages are still open for business.’
He adds: ‘Remortgaging is not immune to current events as physical valuations are often required, especially for those requiring a high proportion of loan to the value of their property.
‘There are ways to value from a distance, using Street View and other data on local valuations but it will depend on individual lenders whether this will be enough.
‘If your deal is due to come to an end within the next three to six months, it would be good to start looking around now.’
Some borrowers may find lenders scrutinising their income more closely, especially if this includes commission or a bonus, which could be in the balance in the wake of the crisis.
Even if your income has taken a hit, there can still be options to remortgage. Although a new lender might not welcome you with open arms if your finances look less robust than pre-coronavirus, it can be useful to see what’s out there.
You can then weigh up what your existing lender might make available beyond its standard variable rate. Your current provider will not need to make the same level of valuation scrutiny.
When choosing a new loan, always find out whether you will face exit penalties from your current deal, as well as the cost of setting up a new mortgage where there can be high arrangement fees (sometimes as much as £2,000).
Compare rates using an internet comparison service, such as Money- SuperMarket, an online broker such as Trussle or a traditional fee-free mortgage broker like London & Country Mortgages.
How remortgaging helps
A borrower with a typical £150,000 repayment mortgage over a 20-year term on the average standard variable rate of 4.75 per cent could save a handy sum by switching.
Sticking on the standard rate, a borrower would be making monthly repayments of £970.
Assuming they have at least 40 per cent equity in their home, they could transfer to one of the best deals available, such as Barclays’ 1.26 per cent fixed for two years.
Doing this would see the borrower’s repayments fall by £263 a month to £707.
That’s a saving of nearly £6,300 over the two years of the deal.
There is an arrangement fee of £999 (but no legal or valuation costs).
Taking this bill into account would still leave you better off by about £5,300 over the period.