Customers of the Big Six lenders who fail to remortgage face making payments of £3,242 a year if they slip onto the standard variable rate (SVR).
Research by online mortgage broker Trussle has revealed borrowers with Lloyds, Nationwide, Santander, RBS, Barclays, and HSBC would see their monthly interest rate jump by an average of 2.5 per cent when automatically transferred from a leading two-year fixed rate to an SVR.
As a result, customers of the Big Six - which collectively serve 69 per cent of the mortgage market - must pay out £272.50 for every month they delay decision to remortgage.
Ishaan Malhi, chief executive and founder of Trussle, said: “The results of this inaugural Mortgage Saver Review highlight the need for the mortgage sector to better educate borrowers and simplify a raft of unfair practices.
“Borrowers are being put at a huge disadvantage by not understanding the implications of lapsing onto their lender’s Standard Variable Rate. This costs UK homeowners an alarming £10 billion a year in interest payments.
“The industry, its regulators, and the UK government can address these challenges by working together. Potential solutions could be to agree a reasonable upper limit on SVRs, and a system where lenders are not only obliged to warn their mortgage customers well in advance of their fixed rate coming to an end, but also to confirm receipt of this notification.”
Around a third of the three million households currently on SVRs are so-called ‘mortgage prisoners’, unable to switch because the introduction of stricter borrowing rules means they fail to meet the criteria for a new mortgage.
But the remaining two-thirds - who make up 18 per cent of the mortgage population - could switch immediately, meaning they are overpaying lenders by £9.8bn in interest payments every year.
A lack of borrower awareness lies behind the trend, with two-thirds (65 per cent) of UK mortgage holders unaware that a lender’s SVR is typically worse value than a fixed rate and one in four (24 per cent) not knowing what ‘SVR’ stands for.
In addition almost half (48 per cent) of mortgage holders surveyed did not know when their fixed rate period comes to an end.
Bad experiences while getting their first mortgage could also be a factor, with 41 per cent of borrowers saying they had a negative experience and 8 per cent admitting to crying during the process.
Paula Higgins, chief executive of the property advice website HomeOwners Alliance, added: "This study confirms that more needs to be done to educate homeowners on the value of remortgaging at the right time to avoid ending up on a more expensive SVR.
“There is an onus on lenders to not take advantage of homeowners’ switching inertia and instead look to foster an active ongoing client relationship. This includes making greater efforts to alert their customers to more suitable deals and the financial benefits of remortgaging at the right time.”
The research was based on a nationally representative survey of 2,000 UK mortgage borrowers carried out in April 2017 by OnePoll.
simon.allin@ft.com
