Four in five UK homeowners on SVR or tracker mortgages are sitting on a variable rate time bomb.
There are at least 2million homeowners on mortgage pay rates of 2.5% or less. If this group all took a traditional fixed rate remortgage they would be shelling out as much as £5billion* in unnecessary fees warns insurer MarketGuard.
Whilst banks are right to ensure that their customers have adequate protection from events beyond their control so they don’t default, homeowners must check that banks aren’t using this as an excuse to force them into their own uncompetitive products.
Chris Taylor, chief executive of MarketGuard, comments: “Rates have a history of moving unexpectedly and much faster than anyone predicts. When they do it is clear that we face a major problem and repossessions could become the mortgage story of the next few years. Locking in low rates now is the savvy thing to do.”
“Many commentators claim rates aren’t likely to rise, but it is still far more likely than your home being burgled and yet no one would suggest you cease taking contents insurance. Gambling with your mortgage payments is a dangerous game and not something anyone should advise.
“A significant number of people, primarily ‘the squeezed middle’ are vulnerable to a rate rise and will be told they have to remortgage, resulting in unnecessary costs at a time of already acute financial pressures. When you look at the rising cost of living with petrol prices mooted to go up soon, inflation and pay freezes, the future can look uncertain for those on variable rate mortgages.”
MarketGuard has a revolutionary product which protects mortgage holders against future interest rate rises. RateGuard is a monthly insurance policy that pays the difference if repayments were to rise. It is typically cheaper than remortgaging from a variable rate deal as it avoids the average £1,500 fee for the obligatory valuations, surveys and legal fees.
For example, customers with a £100,000 Nationwide mortgage paying 2.5% considering a remortgage onto the market leading 3.00% fix would typically pay £1,500 in fees. Even if the Bank of England rate does not rise, they could save £1,842 by taking RateGuard instead of a fix rate mortgage.
Taylor added: “SVRs are a time bomb waiting to happen. Gaining security and control over your monthly outgoings should be at the top of everyone’s ‘to do’ list but at a time when finances are tight, it is also important consumers know that remortgaging isn’t always the most efficient way to do it.
“If homeowners simply want to know how much their mortgage payments will be, they really don’t have to go through the lengthy and expensive process of having their house valued and surveyed or to pay legal, banking and arrangement fees.
“The average homeowner may remortgage every two years (or as many as 12 times during the life of the mortgage), at current rates this adds up to as much as £18,000 on fees. Remortgaging is inefficient and customers need to understand that there are alternatives out there.
“For peace of mind, any homeowner – whether they are on a great low rate or they are unable to remortgage due to loan to value, credit or income condition should seek advice and lock in their low rate now”.