Private Finance has concluded that a borrower on an average standard variable rate could save over £4,500 a year by switching to a two-year fixed rate deal.
The mortgage broker says, in total, borrowers pay £15.4bn a year in SVR interest, with the typical rate on a 75 per cent LTV loan being 4.39 per cent, equalling an annual interest payment of £7,546 on an average loan of £173,677.
This compares to the average two-year fixed rate at the same LTV level and loan amount being at 1.76 per cent, which equals an annual interest payment of £3,012.
Multiplying these totals by 25 years yields a £71,553 difference in interest payments. This, says, Private Finance, means that 65 per cent of the original loan amount is paid as interest, comparable to the scale of interest on much-maligned ‘payday’ loans.
Private Finance points to FCA data that shows that just over 2 million mortgage borrowers have been on an SVR for six months or longer – a quarter of all mortgage borrowers.
Private Finance director Shaun Church says: “With rates falling fast in recent years, the gulf between SVRs and typical mortgage rates is becoming increasingly apparent. Lenders are cashing in on borrowers’ inertia, charging rates that are more than two times the rate they would charge to new customers.
“Though it is ultimately the borrower’s choice, lenders are making significant profit by punishing customers for being loyal. The message to borrowers is clear: don’t fall into the SVR trap and always switch to a more competitive deal once your existing mortgage term comes to an end.”