Mortgage providers criticised for taking advantage of borrowers as fixed rate deals expire
Leading online mortgage provider Mortgages.Online is encouraging mortgage borrowers to be more diligent when it comes to the end of their fixed rate deal with their mortgage provider, and they find themselves moved to the lender’s ‘Standard Variable Rate’.
Paul Flavin, founder of Mortgages.Online says, ‘Many people drop from their introductory rate to a lenders Standard Variable Rate, and notice a painful jump in the first month. They promise themselves they’ll sort as a matter of urgency, but while the second month the payment is less painful, it reminds them they still haven’t sorted it. By the third month the payment is accepted and “more important matters” rise to the surface.’
‘With the exception of just two years during the financial crisis, over the past 15 years the Standard Variable Rate has tracked at up to 2% more expensive than fixed rates, and many borrowers who opted for fixed rates following the crisis will now find themselves paying more than they had planned for.
‘In January 2019, the average Standard Variable rate was 4.9%, compared to 2.52% for a two-year fixed-rate mortgage.’ adds Flavin.
The good news is that mortgage lenders are having to be more transparent now than they have in the past, and are being more proactive in offering rate switches.
However, according to Paul Flavin, it is rare that the rates offered are the best available to the client when compared to what’s available on the open market.
‘The issue is that the ease of transfer when compared to making a new mortgage application with an alternative lender is alluring enough to make remaining with an existing mortgage lender the preferred (easy) option.’
This week mortgage lender John Charcol reported a growth in consumers re-mortgaging properties rather than moving house in response to stamp duty rises, and Kensington Mortgages warned of a looming crisis as fixed rate mortgage deals run off.
‘It is precisely because of these events that lenders need to adopt a more responsible approach, and use their Standard Variable Rate products as a last resort rather than a default,’ says Paul Flavin.