Stock market corrections are an unavoidable fact of life, temporarily blowing a hole in your savings and pensions.
But there is no excuse when it comes to ensuring the mortgage you have is protected from the effects of economic upheaval and the threat of higher interest rates.
Sadly, a reluctance to change loan provider is costing homeowners a staggering £10 billion a year – matching the annual cost of online fraud in the UK.
Average borrowers on a lender’s standard variable rate – the interest rate customers roll on to when any initial offer ends – could save as much as £4,700 a year if they switched to a best-buy home loan.
Fixing the rate will also protect them from rate hikes.
Sadly, a reluctance to change loan provider is costing homeowners a staggering £10 billion a year – matching the annual cost of online fraud in the UK
The figures come from a study by online mortgage broker Trussle which also shows that jargon, poor communication from lenders and a difficulty in comparing deals is hindering customers’ appetite for switching.
Ishaan Malhi, company founder, says: ‘Borrowers are being let down by a mortgage industry that continues to be difficult and confusing to engage with.
‘Two million households are paying a high-interest standard variable rate simply because they did not switch at the end of their introductory deal.’
Research by online mortgage broker Habito shows many are put off remortgaging because they associate it with increasing their debts or falling into financial difficulty rather than securing a cheaper loan.
‘Reluctant remortgagers’ learn to save big
‘SHOCK’: Lauren and James, pictured, moved to a fixed-rate deal
Lauren and James Mitcham were ‘reluctant remortgagers’ – until discovering they could save £2,400 a year by switching.
Lauren, 30, says that when they bought their two-bedroom flat in Greenwich, South East London, arranging the mortgage was ‘more stressful’ than planning their wedding.
So naturally they were not in a rush to repeat the experience.
Instead they rolled on to their lender’s standard variable rate at 5 per cent – far more expensive than other deals available – and stayed paying that rate for more than a year.
The couple also perceived remortgaging in a negative light.
James, 31, says: ‘We thought you remortgaged because you needed to release equity or were having financial problems.’
A friend recommended they try online broker Habito, which saved them £2,400 a year after they moved on to a three-year, fixed-rate mortgage at 1.9 per cent with Nationwide Building Society.
The process involved filling out a questionnaire and having an ‘online chat’ with an adviser.
Lauren says: ‘We did most of it from our sofa while watching TV and were delighted to discover we could save £2,400 a year.’
Habito’s Daniel Hegarty says: ‘People have a real but misplaced fear of mortgages. They believe they are complicated and too time-consuming to sort out. Many even worry that by trying to remortgage their lender might reject them, putting them in danger of losing their home.’
Another common misconception is that homeowners are getting a good loan deal by virtue of being a loyal customer.
A snapshot of the market
Homeowners seeking out cheaper mortgages should not delay as rates are poised to rise in coming months. First-time buyers should also act swiftly to grab a leading mortgage rate for any imminent property purchase.
Since September 2016, banks and building societies have had access to cheap credit from the Bank of England, on condition they pass on rate cuts to borrowers. But this 17-month spell of financial support, known as the ‘Term Funding Scheme’, dries up in little over a fortnight.
David Hollingworth, of broker London & Country Mortgages, says: ‘The end of the funding scheme could put upward pressure on mortgage rates and herald the end of ultra-low rates that borrowers have become used to. The Bank of England has also signalled that rates will rise this year.’
He adds that speculation over the next base rate rise threatens to push up the cost of new fixed-rate mortgages sold to homeowners.
A hike in base rate would also directly impact homeowners with a variable mortgage rate.
Hegarty says: ‘Some economists are predicting two or three base rate rises this year. If both were to happen at 0.25 per cent, mimicking last November’s rise, this could add a further £45 to the monthly cost of an average homeowner’s mortgage – an extra £540 this year.’
Challenges in comparing
Customers often struggle to pick the right mortgage among tens of thousands of options. Indeed one in four people are thought to be on the wrong deal.
While it seems common sense to pick the lowest interest rate, set-up fees can add thousands of pounds to costs, making low-interest loans more expensive than they first appear.
There are brokers who simplify mortgage shopping by asking the right questions and doing all the legwork to find the best deal.
Companies that can help include London & Country, John Charcol and the Mortgage Advice Bureau.
There are also new free online mortgage brokers using technology to tackle switching inertia. Trussle and Habito, for example, monitor deals and alert customers when a cheaper offer becomes available.
They factor in fees and early repayment charges for leaving an existing deal, so only alert homeowners when it makes sense to switch. The broker side of the companies can then guide customers through the remortgaging process.
Digital brokers appeal to the growing number of ‘sofa switchers’ – who prefer viewing deals in their own time without having to book an appointment and avoiding any pressure to make on-the-spot decisions.
There is freedom to chat with experts over the phone, via email or live-chat. They are free to use, relying on commission from lenders to make a profit. Other digital brokers to consider include MortgageGym and Burrow.
Meanwhile, credit information group Experian is trialling a mortgage eligibility tool which it hopes to roll out in the next few months.
It filters home loans so people can see which ones they are most likely to be approved for – an aid to those who fear rejection from lenders.
Amir Goshtai, of Experian, says: ‘Too many people are on a standard variable rate mortgage. A combination of inertia and uncertainty means they are paying more than they need to.’