Some borrowers will take out a mortgage with a fixed-rate deal, meaning they’re able to benefit from a certain rate for a specific amount of time. However, it can be that when this rate ends, they are moved onto their lender’s Standard Variable Rate (SVR), which is set by the lender. And, it may be that switching to a different mortgage deal instead could see a person have to pay less on their mortgage repayments. In fact, according to research by mortgage broker Habito, 55 per cent of mortgage holders could save nearly £300 per month by switching mortgage deal.
In the Mortgage Market Report last year, the Financial Conduct Authority (FCA) estimated than two million customers had been on a reversion rate for six months or more.
It also estimated the more than half a million consumers had been on this type of rate for more than five years.
Which? said that in January 2019, the average SVR stood at 4.9 per cent according to Moneyfacts, while the average two-year fixed-rate deal cost 2.52 per cent.
For those on a fixed-rate mortgage, the mortgage holder will acknowledge – via signing the terms and conditions – that the introductory rate is for a fixed period of time, and when this ends, it’s up to them as to whether they remortgage at a competitive rate or not – thus lapsing onto the lender’s SVR rate.
Mortgage broker Habito has now unveiled its pledge to alert every customer that their fixed-rate period is due to end, four months in advance of this date.
Its “4 Months’ Notice” commitment comes after it found that the top six mortgage lenders by market size in the UK give up to zero to four months notice period.
Daniel Hegarty, Founder and CEO of Habito, said: “We’re calling for mandatory communications notices from all mortgage lenders and banks starting at four months prior to the initial period ending, and across email and text.
“As is so often the case in traditional financial services, loyalty is penalised rather than rewarded.
“The longer you stay with the status quo, the more you pay.
“People deserve better than that – they need the right information about their mortgage, given at the right time, to make the right choice on what’s best for them.”
He continued: “We strongly believe we have a duty of care to our customers to ensure that whoever their mortgage lender is, we help them avoid the trap of spending more than they should on their mortgage.
“It can take anywhere up to eight weeks for a remortgage to complete so if a customer is only notified the month before the end of their deal, they’ll most likely end up paying the lender’s SVR.
“This could see their mortgage payments soar by 30 per cent from one month to the next.”
While the UK may not have guidelines for lenders to give customers notice about the fixed term or a mortgage coming to an end, there are regulations on the matter elsewhere.
In Ireland, a new regulation was brought in earlier this year, forcing lenders and banks to notify all customers two months before their fixed-rate mortgage term ends and to provide details of the new rate as well as other possible remortgage options.