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One in seven mortgage-holders on a standard variable rate (SVR) mortgage keep meaning to switch deals but haven't got around to it, Which? research shows.
With the average SVR now 8.18%, this could cost homeowners hundreds of pounds more each month compared to what they could be getting by remortgaging to a new deal with rates closer to the 6% mark.
Here, we reveal how much you could save by switching and if a SVR mortgage is ever a good idea.
A Which? survey of 2,313 mortgage holders in July found that 18% of them were on a SVR.
14% said they 'keep meaning to switch but haven't got around to it' or haven't thought about it, while 15% do not think switching is worth the hassle.
Borrowers are automatically put onto their lender's default SVR if they do not remortgage onto a new deal when their original fixed-rate or tracker deal comes to an end.
But the SVR is often the priciest rate your lender will offer and it can change at any time.
Changes are usually influenced by what happens to the Bank of England base rate, yet this isn't always the case. Last month, the base rate froze at 5.25%, but a number of lenders including NatWest and Yorkshire Building Society still hiked their SVR.
The average SVR is now 8.18%, well above the average two-year fix (6.43%), five-year fix (5.97%) and two-year tracker (6.17%), according to Moneyfacts data.
Those in two minds about switching off a SVR should be aware of the potential savings to be had by moving onto a fix or tracker.
Our example compares the average monthly bill for someone with a £200,000 mortgage with 25 years remaining across four different types of deals.
| Mortgage type | Average interest rate | Monthly repayment |
|---|---|---|
| Standard variable rate (SVR) | 8.18% | £1,568 |
| Two-year fixed rate | 6.43% | £1,342 |
| Five-year fixed rate | 5.97% | £1,285 |
| Two-year tracker | 6.19% | £1,312 |
There is a significant price gap, with the average five-year fix costing £283 less per month than the average SVR.
If the SVR were to stay at the same 8.18% rate for five years (which would be unlikely), it would cost £16,980 more over that five-year period compared with the average fixed deal.
Usually, mortgage holders can switch from a SVR without too much hassle as there aren't normally any tie-in periods or exit fees.
There are, however, some 'mortgage prisoners' who are unable to negotiate a better deal. Results from our survey show that 9% of those wanting to come off a SVR can't do so as they are in negative equity - when a home is worth less than what you owe on your mortgage.
If you do meet lending criteria to switch, the best way is to remortgage onto a new deal, whether it be your existing lender or a different one. To get an idea of the best deals currently available, check out our guide on the best mortgage rates, which includes deals specifically for remortgaging.
For more tailored advice suited to your specific circumstances, speak to a whole-of-market mortgage broker.
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If you click on the link and complete a mortgage with L&C Mortgages, L&C is paid a commission by the lender and will share part of this fee with Which? Ltd helping fund our not-for-profit mission. We do not allow this relationship to affect our editorial independence.
In our survey, 37% of respondents on a SVR said they were happy with their current mortgage.
While the interest rates are currently sky-high, a SVR can prove to be beneficial in certain situations.
For one thing, they tend to offer more flexibility, which can be good if you're planning to remortgage or move house in the near future, as you're unlikely to face an Early Repayment Charge (ERC) - this is a penalty for repaying your loan before the end of your deal.
So, if you've got the cash to overpay or even clear your mortgage, transferring to your lender's SVR could prove useful as you'll be able to do so without having to pay a fee.
This is handy for those with a small amount left on their mortgage. For example, someone with £20,000 left could pay it all off in a lump sum - rather than continue to stretch out their mortgage repayment on a fixed or tracker deal.
You might also be banking on the chaos surrounding interest rates will calm down over the next few months and can afford to wait for deals to become cheaper before locking another one in.
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