Homeowners suffer ‘procrastination penalty’ when fixed rate mortgages end


A third of mortgage holders whose deals expired last year ended up paying a ‘procrastination penalty’ of hundreds of pounds which could have been avoided had they remortgaged sooner.

Homeowners coming to the end of initial deal periods, which will typically be fixed rates but sometimes trackers, are failing to get their act in gear to move to a new mortgage – and slipping onto expensive default standard variable rates instead.

Borrowers who left their mortgage renewal too late paid an average penalty of £371 each after ending up on their lender’s standard variable rate, according to research from mortgage adviser Dynamo and broker Countrywide.

Some homeowners could be paying triple the interest rate they would on a fixed rate, with standard variable rates hitting six per cent in extreme cases.

Experts recommend starting your search around four months before your current deal is due to expire

Experts recommend starting your search around four months before your current deal is due to expire

Experts recommend starting your search around four months before your current deal is due to expire

Seb McDermott, chief executive at Dynamo, said: ‘The research shows that far too many people are not switching mortgage deals in time.

‘This can prove costly – to the tune of nearly £62 a week for the six week period – which is more than the average family food shop.’

McDermott recommends that people start their search around four months before their current deal is due to expire. 

This is Money’s mortgage finder, which allows borrowers to check the best rates they could apply for, shows that the cheapest deals possible for a homeowner with a 75 per cent loan-to-value Halifax fixed rate mortgage coming to an end could be a two-year fix at 1.36 per cent with Yorkshire BS,  or a five-year fix at 1.89 per cent with First Direct.

 That compares to Halifax’s 3.99 per cent standard variable rate. 

On a £150,000 mortgage with a 25 year term, monthly payments would be £628 on the lowest five-year fix, or £590 on the lowest two-year fix, but £790 on the standard variable rate. 

One in four could benefit from remortgaging

Separate research from MoneySuperMarket has found that more than 70 per cent of homeowners have not considered remortgaging their property – despite significant savings available for at least a quarter of homeowners.

With the average amount saved by remortgaging sitting at £439, this equates to £3.4billion nationwide.

The research found that of the three in five borrowers across the UK on a fixed term deal, one in six have no idea what will happen to their repayments once their fixed-term period comes to an end.

Among 18-24-year olds, almost four in five of whom are on fixed term deals, 20 per cent are unsure of their repayments once the fixed term ends. Despite this, 60 per cent of those in the 18-24 age bracket noted they are in fact planning on applying for a new mortgage within the next two years.

Sally Francis-Miles, of MoneySuperMarket, said: ‘The UK mortgage market is worth £1.3trillion so if even a quarter of those with a mortgage can save a few hundred pounds each, that’s a drastic amount.

‘There are many tools online to look at available deals, and remortgaging is far simpler than getting a mortgage when buying or selling, especially if you’re able to switch to a better deal with your existing provider.’ 

Seven out of 10 borrowers have never been contacted by their provider with an offer of an updated deal.

That figure rises to 78.2 per cent of those over 55, 40 per cent of whom have been on the same mortgage deal for more than 10 years.

Those in Wales were the least likely to have been contacted by their provider, followed by those in the North West, the East Midlands and Scotland.

However, a third of homeowners are planning on applying for a new mortgage within the next two years. 

Do you need a mortgage alarm? 

Dynamo has recently launched a ‘mortgage alarm’ service which will send alerts to borrowers six months and three months before their term ends.

Andrew Hagger, founder of Moneycomms, said: ‘Hopefully initiatives such as the Dynamo Mortgage Alarm Clock alert facility will prevent borrowers being subject to such punitive rates.

‘With further interest rate hikes a real possibility, bagging a new mortgage rate sooner rather than later is even more important.’






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