Homeowners on discount deals have only 14 months to remortgage once offer ends
Research found that:
• Homeowners on discount deals have just 14 months to remortgage once offer ends, before all benefit is eroded
• Over the average life of a mortgage, discount mortgages cost £1,840 more than low long term trackers or SVRs1
• Discount deals with high SVRs cost over £520million2 more in interest each year than low long term trackers or SVRs
“Discounted rate mortgages are popular with homeowners for good reason, as they help initially to reduce outgoings. However, for the typical borrower avoiding loans with a high ongoing standard rate is more important. Our research shows that on average once borrowers start paying this ongoing rate they have a mere 14 months to remortgage before all of the benefit of their initial discount is destroyed” says Andy Deller, Director of Banking & Insurance, Egg
An average homeowner choosing a mortgage with an initial discount and a high ongoing standard rate, will collectively pay £520 million more in interest each year than they would on long term low tracker or standard variable rate (SVR), according to latest research by Egg.
By holding onto the same mortgage for the current average of 5 years borrowers would pay £1,840.56 more in interest than a homeowner choosing a mortgage with a rate that is consistently no higher than 1% above the Bank of England Base Rate.
Latest estimates from the Council of Mortgage Lenders are that discount mortgages account for a third of all mortgages sold – with the most popular deals offering discount periods of 2 years or less.
Egg’s analysis took account of the lowest 2 year discounted rate mortgage products offered by 8 of the UK’s 10 largest lenders, all of which have standard variable rates of at least 2% above the Bank of England Base Rate and represent 4 out of every 5 discount mortgages sold in the UK today.
Andy Deller continues: “For committed switchers traditional discount mortgages make real sense, however with the current level of apathy among the majority of borrowers, they are likely to end up significantly worse off than if they had chosen a mortgage with a low long term standard rate. These borrowers would be better off looking for discount deals with slightly shorter discount periods that lead into cheaper ongoing rates.”
Egg is currently offering a discount of 1.5% for six months on its tracker rate for all new mortgages; the initial rate is a low 4.24% variable, followed by 5.74% variable. The overall cost for comparison is 5.8% APR. This offer is available for a limited period. Egg’s tracker rate will always be Bank of England base rate plus 0.99% for the life of the loan.