Homeowners who fail to switch mortgage deal face paying thousands of pounds more in interest every year.
New research by Citizens Advice found two-fifths of mortgage holders failed to remortgage at the end of their fixed term, resulting in considerably higher bills.
Here, Which? explains the importance of switching mortgage and offers advice on the best rates currently available.
Homeowners failing to switch deal
Research by Citizens Advice found 42% of homeowners whose introductory periods have ended since the start of the pandemic have taken no action to switch their mortgage to a cheaper rate.
The charity says this means many people will be paying a huge penalty for sticking with their current provider.
It has also raised concerns that vulnerable people and those affected by Covid-19 may find it more difficult to switch than other homeowners, and has called on the regulator to help.
Alistair Cromwell of Citizens Advice says: ‘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 support schemes come to an end, tackling the loyalty penalty is one way that regulators can protect consumers from unfair and unnecessary costs.’
Why is it important to remortgage?
The vast majority of homeowners have fixed-rate mortgages. These deals allow you to lock in your mortgage rate for a set term (usually two or five years).
At the end of that term, you’ll need to remortgage to another deal, or you’ll automatically be moved on to your lender’s standard variable rate (SVR).
The SVR is almost always considerably more expensive than the fixed rate you’ll have been paying, and the lender can change it at any time.
The graph below gives an example of how average SVRs compare to fixed-rate deals.
How much more will I pay on my lender’s SVR?
To give a better picture of the additional cost of lapsing on to your lender’s SVR, we’ve analysed the costs of some of the cheapest mortgages currently on the market.
The table below shows the initial rate on the cheapest two-year fix currently available at 60%, 75% and 90% loan-to-value, alongside what that same mortgage would cost at the end of the two-year introductory period if you failed to switch.
These figures are based on borrowing £200,000 on a 25-year mortgage.
| Loan-to-value | Initial rate (first two years) | SVR (after two years) | Monthly repayment (first two years) | Monthly repayment (after two years) | Difference per month |
| 60% | 1.06% | 4.34% | £759 | £1,062 | £303 |
| 75% | 1.19% | 5.14% | £771 | £1,150 | £379 |
| 90% | 2.40% | 4.35% | £887 | £1,079 | £192 |
As you can see, a homeowner on a 60% mortgage could find themselves £303 a month – or £3,636 a year – worse off, simply by failing to switch after two years.
Best remortgaging rates for April 2021
If you are looking to remortgage this year, the good news is that rates are very low at the moment.
The interactive chart below shows the cheapest initial rates currently available on two and five-year fixes.
Simply hover your cursor over the bars below to compare rates.
How to remortgage at the end of your deal
You can usually lock in a new deal six months before the end of your current one, so it’s worth shopping around well in advance of your mortgage expiring.
Your lender will write to you a few months before the fixed term ends, but you may wish to get in touch yourself so you can compare deals sooner.
If you switch to another mortgage with the same lender, this is called a product transfer. Staying with the same bank is likely to be quicker and easier, but you might be able to find a much better rate from a competitor.
Remortgaging can save you a lot of money, but you should only switch at the end of your fixed term. If you switch earlier, you may need to pay an early repayment charge to your lender, which can run to thousands of pounds.
Covid-19 support for mortgage holders
If you’re struggling to pay your mortgage due to the pandemic, there are some support measures still available.
It’s no longer possible to apply for a new formal payment holiday on your mortgage, but lenders are now offering tailored help.
This assistance can include measures such as temporarily pausing or reducing payments, or changing the term of the mortgage.
If you’re having financial difficulties, you should contact your lender as soon as possible to discuss which measures may be available to you.
