One in three borrowers hit by the pandemic face paying thousands more in repayments by choosing to stay on their lender’s standard variable rate once their existing mortgage expires.
A new report from the Legal & General Mortgage Club says 32 per cent of borrowers who have seen their income fall due to the health crisis are considering staying on the SVR once their current product ends.
“The impact of Covid-19 is deterring thousands of borrowers with maturing loans from remortgaging”, says the club.
It adds, this could hit up to 700,000 borrowers who hit the end of their two- and five-year fixed-rate mortgages this year.
Moving onto a lender’s SVR could increase annual mortgage repayments by more than £2,500, compared to borrowers who lock into an average two-year fixed rate product, according to the club.
Just over half, or 52 per cent, of borrowers who have seen their income cut as a result of the pandemic are concerned that lenders will now be scrutinising their finances in more depth compared to pre-Covid levels, the survey reports.
And half of borrowers who took a payment ‘holiday’ are worried that this will affect future mortgage options, while 67 per cent believe it will be harder to get a mortgage when furloughed.
Around 4.7 million workers remain furloughed, according to a report by HM Revenue and Customs last month.
Legal & General Mortgage Club director Kevin Roberts says: “While the coronavirus crisis has undoubtedly affected people’s finances in different ways, those who have seen their incomes drop will likely be finding this a particularly challenging time so it’s vital they avoid falling onto a reversion rate and paying more when there are other affordable options available.”
He adds: “Covid-19 may have dampened the confidence of a large number of borrowers wanting to lock into a new rate, yet the cost of not exploring their refinance options could be significant. Even for those borrowers who have seen a reduction in income, there may well be products available that would save them money in the long term when compared to their lender’s SVR.”
Legal & General Mortgage Club interviewed 1009 adults in its survey, which took place between 20 and 27 January 2021.
