Research from Abbey1 has revealed that half of all borrowers are on a short or medium term mortgage deal, such as a two-year fixed rate. Of these, over a third (35 per cent) don’t intend to remortgage at all when their current rate expires, and will not be actively searching out the next best mortgage deal.
Abbey estimates that 800,0002 people in the UK have come to the end or are about to come to the end of their cheap fixed rate deal taken out two years ago. If, as the Abbey figures suggest, a third of those borrowers do not remortgage and instead move onto a Standard Variable Rate, 280,000 people could be wasting £20 million3 in mortgage payments each month.
As well as not being on the ball when it comes to remortgaging, many borrowers don’t even know what deal they are on or when it ends. Thirteen per cent of borrowers do not know what their existing interest rate is and a further 41 per cent have only ‘some idea’. In addition, only one in three borrowers (30 per cent) with mortgage deals know when their deal expires. Seven per cent of people are completely unaware when their existing deal ends, 12 per cent only know the year that it ends and 16 per cent know to within a few months.
This lack of knowledge on rates and remortgaging could mean that many borrowers have not noticed that mortgage rates have risen by an average of 1.29 per cent in the past two years.
If a borrower has had a fixed rate of 4.00 per cent for the past two years and reverts to the average SVR of 6.5 per cent, monthly payments will increase by £1486. Over a 12-month period this is a total of £1776.
Gary Hockey-Morley, Abbey's Director of Mortgages, said, “Put in context, interest rates are still fairly low compared with the 1990s. However, the overall trend since autumn 2003 was upward until the Bank of England cut the Base Rate last month. All borrowers coming to the end of a deal should look around for their next mortgage deal as soon as they can. Shopping around is crucial because rates and fees vary greatly between lenders and can change quickly. It is really important that borrowers find a deal that suits their individual needs, remortgaging is easy to do and could result in a significant monthly saving.”
Many people leave it to the last minute, or even later, before they actually remortgage. The Abbey survey showed that three per cent don’t remortgage until a week after their existing deal expires. Nine per cent will drag their heels for between a week and four weeks and a further eight per cent will not remortgage for between one month and three months after. Abbey calculates that each month a borrower stays on an industry average SVR rather than remortgaging to a better rate can cost up to £1484.
How Abbey can help
Abbey’s Flexible Plus mortgage has a guaranteed ‘rate for life’, which means that people do not need to keep remortgaging to get a good deal. It comes with the added bonus of having a savings facility, which allows savings to be offset against the mortgage balance, reducing the amount paid in interest.
Abbey has also launched a range of very competitive deals for remortgage customers. Booking fees for borrowers remortgaging to Abbey’s fixed and tracker mortgages have been reduced down to just £299. Fixed rate mortgages are now available from 4.39% and variable tracker mortgages are available from 4.24%. Abbey also offers fixed, tracker, and stepped rate mortgages with ‘benefit packages’ including free legal and valuation fees.
All remortgage customers that take out an Abbey policy for buildings or contents insurance between 5 September 2005 and 23 October 2005, will receive one months cover absolutely free.
For more information about Abbey mortgages visit www.abbey.com or call 0800 100 802.
