Reducing outgoings is something many people hope to do, but cost-cutting can often mean unwanted lifestyle changes. However, new research suggests that a simple switch when it comes to their mortgage could see hundreds of thousands of homeowners reduce their monthly expenditure.
New research by comparethemarket.com has found that homeowners on a Standard Variable Rate (SVR) mortgage could be paying more than £2,300 a year extra, in comparison to those on the average two-year fixed mortgage deal.
According to the price comparison website, there’s approximately 800,000 borrowers who have been on a Standard Variable Rate for more than six months.
And, should all of these borrowers switch to a competitive deal, the savings would equate to nearly £2billion being saved nationwide.
On an individual level, the analysis has found that the switch could see borrowers reduce their mortgage payments by nearly £200 per month on average.
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Now, comparethemarket.com is urging borrowers who are either coming to the end of their initial rate, or already on a Standard Variable Rate mortgage to see if they can switch their mortgage and save money.
And, with the property market beginning to reopen following the COVID-19 lockdown, and physical valuations beginning to resume, it’s suggested that borrowers may be able to save thousands of pounds each year by remortgaging onto a cheaper fixed deal.
Otherwise, borrowers are automatically moved onto a lender’s SVR once a fixed term deal ends.
Mark Gordon, director of money at comparethemarket.com, said: “Languishing on a lender’s standard variable rate mortgage is likely to cost you thousands of pounds more than you need to pay.
“By remortgaging, the money could instead be put into savings or could be put away in preparation for any emergencies or to build up rainy day funds.
“While there are fewer mortgage products available on the market than usual at the moment, with the housing market slowly restarting again and physical property valuations able to take place once more, there are still plenty of good rates to choose from by looking around online.”
In the UK, the average mortgage debt is just over £135,000.
According to the latest Bank of England data, the average two-year fixed mortgage rate is 1.42 percent.
In comparison, the average SVR today is 4.09 percent.
Based on these rates, homeowners coming to the end of a two-year fixed mortgage and rolling onto an SVR would therefore pay £193 more each month, comparethemarket.com said.
The price comparison firm said that it meant monthly payments could jump from an average of £465 to £658.
Over the course of a year, this would equate to a total annual saving of £2,316.
Another way borrowers may be able to cut costs is by making overpayments, as Cassie Stephenson, from free, online mortgage broker Habito, explained.
She told Express.co.uk: “Agreeing with your lender to deliberately pay more towards your mortgage, to clear your mortgage faster, can be very good for your bank balance.
“Overpaying in this way can knock several years off your mortgage, save you thousands of pounds in interest, and help you become mortgage-free faster.
“Most lenders let you overpay by 10 percent of the mortgage every year. You can see if yours does this by checking your mortgage documents.”