Borrowers over-paying on lenders SVR

One in five people (19 per cent) are currently on their lender’s Standard Variable Rate (SVR), potentially overpaying vastly on their mortgage, according to a new report.

The research also reveals the most popular mortgage among Brits is a two-to-five year fixed rate, with just over a quarter (27 per cent) opting for this type of product to hedge against future base rate rises. And while an offset mortgage is one of the best ways to help mitigate rate rises, awareness is so low that just four per cent have chosen this type of deal.

The findings are the first in a series from the moneysupermarket.com ‘Mortgage Map’, which aims to uncover patterns and trends within the mortgage arena and will be a comprehensive guide to Great Britain’s mortgage landscape.

Louise Cuming, head of mortgages at moneysupermarket.com, said:“We are excited to be able to present our first overview of the mortgage profile of the British population. Over time we plan to document and analyse the changing face of the nation’s borrowing habits, highlighting the macro and micro factors which may be influencing people’s decisions. The initial survey has thrown up some interesting findings from a Britain-wide and regional perspective – most noticeably that many people are not making their money work hardest for them. Despite recent base rate rises, an unacceptable number are still on their lender’s SVR.”

Fixed rate mortgages

Nationally, more than half of those surveyed (51 per cent) show they prefer the stability offered by a fixed rate product. Two-to-five years is significantly the most popular term overall with just over a quarter of Brits (27 per cent) opting for this type of mortgage.

Interestingly, the largest percentage of borrowers opting for five-to-10 year fixed rate deals are from the South West. This is compared to a national figure of seven percent and just three per cent in the North East.

Louise said:“I think it is thought provoking there is such a regional variation when it comes to five-to-10 year fixes. I imagine this is down to regional house prices, which are now averaging more than £200,000 in the South West. The increasing age of the population is probably also a contributing factor, with a growing proportion of mature borrowers - confident about their future stability - showing more affinity to longer term fixed rate products. It will be intriguing to see if our future research shows an increase in the take up of longer term fixes, as people try to negate future base rate rises.

“Additionally, as more high street lenders are breaking into this market and there are more longer term deals on the available than ever before – most recently the 25 year fix from Nationwide – there will certainly be more choice in this market.”

Standard Variable Rates (SVR)

Currently nearly one in five Brits (19 per cent) are languishing on the SVR. Those North Scotland are the worst offenders with a staggering 35 per cent on the SVR; Lancashire also falls foul with exactly a quarter sticking with the lender’s uncompetitive offering.

Louise said:“It’s unbelievable so many people are playing into the lenders’ hands and paying the standard variable rate. As this is likely to be at least two per cent above the leading rates available, this lack of action to review their mortgage could be costing borrowers dearly – having both a negative impact on their lifestyle and their future prosperity.”

Trackers

Just over one in ten Brits (11 per cent) are currently on a tracker mortgage. This nearly doubles to one in five (19 per cent) for those in the South of the UK.

Louise said:“Trackers are still a relatively new phenomenon, typically favouring discount mortgages these days and I expect this trend to rise. The regional split is likely to come as the North of the UK is more intrinsically linked to building societies and consequently discount products.”

Key Facts – Home Ownership in the UK

24 per cent of people own their property outright
42 per cent of people have a mortgage

Louise said:“This study represents a snapshot of the whole of the borrowing population and as such adds value to the statistics based purely on new lending. Regional variations could point to a need for lenders to review their marketing approach, or even to deliver different product solutions to meet the differing needs in each area.”

”This research also supports the view there is no great appetite for ‘lifetime mortgage products’ such as equity release. The retired generation for whom these mortgages are designed still aspires to become mortgage-free and the growth of this sector has been slower than initially predicted by new entrants to the market.

“Worryingly, the fact six per cent of borrowers do not know the rate they are paying underlines that as yet there is no universal awareness of the value of reviewing all financial products periodically. A regular ‘health check’ on a mortgage product is especially crucial as it is frequently the highest single monthly household expenditure. Again, apathy will play into the hands of the provider.”