Intermediaries can help borrowers ease a pain in their SVRs

The value of approvals has averaged £5.6bn per month to the end of June 2015, only a modest increase on the average of £5bn per month across 2014.

However, research commissioned by Virgin Money, undertaken in May among 1,021 UK mortgage holders with a standard variable rate, has shown that many mortgage customers in the UK are sitting on their lender’s standard variable rate rather than taking advantage of mortgage rates that remain low, despite the significant potential savings that are available to them.

Reverting to a lender’s SVR before choosing a new mortgage deal can definitely bring some valuable flexibility for customers.

There are generally no early repayment charges, so customers can overpay or pay off the mortgage early and switch to a new deal at any point. But those who remain on SVR indefinitely are missing out on the potential benefits of remortgaging to a better deal, particularly if mortgage rates nudge-up ahead of any increase in the bank base rate.

Around 3.2m mortgages borrowers in the UK - representing one in every three loans - pay their lender’s SVR, with outstanding loan balances of almost £270bn, according to the CACI mortgage market database. What is interesting is that the gap between the whole of market average SVR and new mortgage rates available has continued to widen over the last year.

At the start of July, the whole of market SVR average stood at 4.92 per cent and the average two-year fixed rate loan was available at some 3.44 per cent lower. This compares to the much smaller differential that existed three years ago, when that gap was only 1.50 per cent.

Research indicates that for many, there is a simple misapprehension about the basic facts associated with current mortgage pricing

This offers a fantastic opportunity for intermediaries to help save their clients money.

Another interesting feature emerges when we compare consumer behaviour in their treatment of insurance products.

Our research found that while 59 per cent of those surveyed had switched car insurance provider and 55 per cent had switched home insurance provider within the last five years, only 3 per cent of those surveyed that sit on their lender’s SVR had switched their mortgage provider over the same period. This is despite the significant savings available if they chose to remortgage.

Customers switching a £160,000 loan are able to save £3,281 per year by moving to a two-year fixed rate mortgage with an average rate of 1.48 per cent. Those with a £250,000 loan could save £5,158 per year, offering a potential saving over the two year term of the fixed rate of over £10,000.

Customers looking for longer-term protection against rising interest rates could save £2,545 per year if they have a £160,000 loan by choosing a five-year fixed rate product with an average rate of 2.29 per cent, or £4,012 per year with a £250,000 loan - offering a saving over the five-year fixed rate period of almost £20,000.

Despite the significant financial benefits to be had, just 14 per cent of those we surveyed said they were likely to remortgage their home within the next year. However, if you can show SVR customers how to reduce their monthly mortgage payment, then over half are likely to remortgage.

For those with a mortgage balance of over £50,000 who consider themselves unlikely to remortgage, the most common factor preventing them from switching from their SVR is a lack of knowledge of the current mortgage market. Almost 60 per cent believed they would not find a cheaper mortgage elsewhere, another lender would not offer them a loan, or it would cost too much money to remortgage.

Yet almost nine out of ten people we surveyed, who said they would consider remortgaging, would switch for a saving of less than £1,500 per year - a value well below the actual savings that are available to them.

Despite this, many choose not to move and the research indicates that for many, there is a simple misapprehension about the basic facts associated with current mortgage pricing and the cost of moving lender.

This offers a real opportunity for intermediaries to help their clients understand the market, the potential savings to be made, and to put some money back in their pockets. It’s also a great opportunity to look at a broader financial review for clients at the same time, potentially using reduced mortgage payments to ensure clients have appropriate insurance cover in place to suit their circumstances.

Peter Rogerson is the commercial director for mortgages at Virgin Money.