Most SVR mortgage holders don’t refinance for a decade

Ryan Bembridge

July 27, 2017

More than half (53%) of customers who roll onto their lender’s standard variable rate don’t remortgage or product transfer for 10 years, research from Citizens Advice shows.

In a study published today, ‘Exploring the Loyalty Penalty in The Mortgage Market’, the organisation found that a quarter of remortgagors found the process difficult and two in five (39%) said they didn’t have time to do more shopping around.

Ray Boulger, senior technical manager of John Charcol, said: “There are a number of reasons why people are on SVRs.

“There are people who may have adverse credit and think they can’t get a better deal. Those people should at least see if they can get a product transfer as that doesn’t require full affordability checks.

“Then you’ve got SVR borrowers with a small balance, say between £30,000 and £40,000. They may decide it’s not worth worrying about switching.

“Then there are people who don’t bother or simply haven’t thought about it. They may have started off with a mortgage pre-credit crunch paying 5, 6 or 7% before rolling onto an SVR, seeing their payments go down and accepting the situation.

“Psychologically if they’re not following the market they may not realise they can get a better deal, which shows there needs to be an education process – whether that’s from lenders, brokers, the press, or all three.”

Boulger wasn’t impressed with the wording of the Citizens Advice study however, which refers to customers who stay with the same lender after the fixed rate period as paying a ‘loyalty penalty’.

Boulger added: “I think talking about a loyalty penalty is about as accurate as some of the words used in the political sphere.

“It’s not a loyalty penalty, nor is it a lazy penalty because some people can’t remortgage.

“Citizens Advice has written it this way to get more coverage.”

The study also said that nearly a third (29%) of SVR payers are on a low income compared to less than one in five (19%) mortgage holders.

Citizens Advice took its data from the Bank of England/NMG survey 2016 of 1,829 mortgage holders.

Ishaan Malhi, chief executive and founder of online mortgage broker Trussle, said: “Looking at the report, we agree that lenders need to nudge their customers into action more often and that there needs to be greater standardisation of the way that rates are advertised so that consumers can easily compare.

“It seems utterly counterintuitive that a market should punish its customers for loyalty and it’s clear that something needs to change.”

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