Some £2.78bn is wasted each year by the 1.1 million households sitting on the wrong mortgage deal, new research from L&C Mortgages has suggested.
On top of this 30% or 3.4 million households don’t know the current interest rate of their mortgage and by switching to a better deal home owners could save on average over £2,500 annually.
Overall 36% of home owners are on a Standard Variable Rate mortgage (SVR) which are typically higher with people in London paying £266 more than they should each month, according to the research from L&C.
It points out that if interest rates rise, as the Bank of England has hinted is a possibility, the four million people who are on SVR mortgages could see their payments rise further.
L&C analysed both external research and internal data which examined the type of mortgage deals home owners are on, their outstanding loan size and the remaining term before identifying a potentially better rate to calculate the savings they could make on their monthly mortgage payments.
The mortgage adviser found that by switching to a better deal, UK home owners can save £216 each month or over £2,500 annually but 58% have never re-mortgaged to save money.
The firm believes that this is particularly worrying given the recent news that inflation is at its highest point since June 2014, energy prices are rising and there is the potential for interest rates to rise as well.
David Hollingworth from L&C Mortgages said: “It’s worrying to see so many people still on a Standard Variable Rate mortgage as they are not the cheapest rates available. Not only is there a lack of awareness around how much could be saved but worse still a huge number of people have never even tried to remortgage to get a better deal.
“With the cost of living on the rise and day to day expenses like energy prices soaring, it is hugely concerning to see that people are paying so much more than they should be. On top of this, our research shows that while homeowners believe they are paying too much for their mortgage they still aren’t taking action to cut their monthly payments.
“Not only have we found over a third of home owners are on their bank or building society’s standard variable rate, but 3.4 million people don’t know their mortgage rate. The chances are they could potentially save hundreds or even thousands of pounds a year by re-mortgaging to a new deal.”
L&C also looked into the UK regions who are overpaying the most and unsurprisingly London topped the table with an average monthly overspend of £266.
The South of England and the Midlands collectively overspend by an average of £222 and the North is paying £201 more than they should be.