The charity has warned that the burden is falling on the consumer to get the best deal, and that those who cannot or will not switch are at risk of paying over the odds for their mortgage.
The Financial Conduct Authority (FCA) has estimated that not switching could leave loyal mortgage customers charged an average extra £1,000 a year in bills.
Research by Citizens Advice also found that disabled people and carers were more likely to see a price increase at the end of their mortgage contracts than the general population.
One in five (21%) mortgage customers who did not switch said the process was too time consuming or difficult.
Many have also been unable to switch due to circumstances outside their control like mental or physical ill health and additional pressures resulting from the pandemic.
Citizens Advice estimates 1.3 million mortgage customers (8%) are behind on their payments as a result of the pandemic.
A further 3.2 million have accepted a mortgage holiday or other help with their mortgage payments, and many others have had to access vital savings to make payments.
Though pandemic interventions like mortgage holidays have safeguarded some customers, many others will be facing long-term financial difficulty.
At a time when many mortgage customers are struggling, Citizens Advice is concerned that the FCA has not yet announced or taken specific action in the mortgage market to address what it sees as the £800m loyalty penalty.
The charity is calling on the FCA to make interventions in the mortgage market as soon as possible, to prevent struggling mortgage customers from paying the loyalty penalty.
Alistair Cromwell, acting chief executive of Citizens Advice, said: “The pandemic has had a devastating impact on household finances.
“While the FCA acted fast to protect mortgage customers from the more immediate impacts of the pandemic, many will be facing long-term financial difficulty in the months and years to come.
“As the pandemic continues to take its toll on our finances, employment, health and relationships, it’s more important than ever that customers aren’t penalised for not switching.
“As COVID-19 support schemes come to an end, tackling the loyalty penalty is one way that regulators can protect consumers from unfair and unnecessary costs.
“The FCA acted decisively at the start of the pandemic and needs to act decisively now.
“The regulator should introduce concrete and enforceable plans to reduce customer bills now, to finish the job on the loyalty penalty.”
