Britons are throwing away millions of pounds a day through ignorance about remortgages, according to a report by Abbey Mortgages. £25 million pounds is being wasted every day because people are paying lenders’ Standard Variable Rates rather than remortgaging their properties. This translates as five million people spending an extra £5 a day.
Nici Audhlam-Gardiner, head of mortgages at Abbey, said: ‘£5 a day or £140 a month on average is not an insignificant amount of money and we know for a fact that five million people could benefit immediately by shopping around.’
Remortgaging can lower your rate to as little as 4.5%, which is considerably less than the standard SVR of most lenders, yet the bulk of Britons are not doing it. According to the Abbey’s research, 47% of mortgage holders do not regularly review their mortgages, which results in them paying £38,432 more than they need to each year.
James Harrison on AOL’s money website claims that people think that remortgaging is a time consuming and stressful business when in actual fact it can be quick and straightforward: ‘a remortgage only requires around four hours of a borrowers' attention and paperwork, typically takes four to six weeks to go through, and can even be no cost with a fees-free deal. Four hours' work to save £100 a month, £1,200 a year, works out at a saving of £300 per hour of a borrower's time - lucrative work!’
Another option is to overpay your mortgage, adding a little extra each month to reduce the term of payments. Figures from the Halifax show that paying an extra £50 per month on a £100,000 mortgage with a variable rate of 7.5% can reduce the mortgage term by four years and save the borrower £22,000. Peter Jackson, head of products at Halifax, says: ‘By making a few small changes today, you could make some significant financial gains in the future.’
However, part of the problem could be that people are just too confused about which mortgage plan is best for them. Another study carried out by Abbey Mortgages has found that consisitent base rate cuts have left a lot of homeowners unclear about the best remortgaging option. The Bank of England base rate has dropped twice in three months and currently stands at 5.25%, with general uncertainty as to how much further it will fall. Audhlam-Gardiner states: ‘While most economists agree they will go down, there is debate about how much they [interest rates] will fall and when. This uncertainty leaves homeowners with a bit of a dilemma on their hands - what is the best mortgage to go for?’
Remortgaging is a more appealing prospect now than for a number of years due to the plummeting base rate. The last time that the base rate was so low was in 2003 when it dropped to 3.75% and the predictable onrush of remortgages occurred. Cath Hearnden of MyMortgageDirect says: ‘People have been hanging on to see if rates would start to come down. Lower rates will start to look more attractive alongside the fees.’
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