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Mortgage loyalty penalty

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 02. August 2022

Looking to speak to mortgage brokers about mortgage loyalty penalty and whether they have had any cases on this. 

Recent research from Citizens Advice has found that around 630,000 mortgage customers could be paying a mortgage loyalty penalty as they have reverted to SVR and not switched deals. 

The charity has called on the regulator to explore “alternative models” to high SVRs at the end of fixed rate terms and to take more action on mortgage market to ensure people are not overpaying. 

  1. Have you had customers who have been paying a mortgage loyalty penalty?
  2. Is this becoming more common?
  3. What “alternative solutions” could there be to high SVRs?
  4. What advice would you give customers?

 

9 responses from the Newspage community

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Rob Peters
Principal at Simple Fast Mortgage
The days of big businesses rewarding customer loyalty are long gone. Borrowers who foolishly believe their existing mortgage lender will reward them at the end of their current fixed rate will get a major shock when their payments potentially double. The average standard variable rate offered by mortgage lenders in the UK is around 5% and this could mean a rise of 2-3% for some borrowers whose current enviably low interest rates are coming to the end of term. The best advice is to work with a mortgage adviser because unlike mortgage lenders, advisers work for you. Any adviser worth their salt will be in touch before the current rate ends to review your circumstances and prevent you dropping onto an expensive SVR. It is in their interest to secure the best deal possible for you because they want your business, and they want you to be an advocate and recommend others. Yes, working with a good mortgage adviser might involve paying a fee, but usually the initial review meeting is free. It's much better to pay a small fee and save potentially £000s over the mortgage term. Some mortgage lenders are even offering the opportunity to lock into a new interest rate 6 months in advance so there is never a bad time to review your circumstances.
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Imran Hussain
Director at Harmony Financial Services
There is no loyalty penalty as lenders will always write the borrow prior to their deal expiring to contact them or a good local broker to get advice on what is the best deal available; there has to be a sense of responsibility from the borrower also to ensure they know when their comes to an end and make sufficient arrangements.
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Samantha Bickford
Mortgage and Equity Release Specialist at Mortgages with Clarity
There's no loyalty when it comes to mortgages and money, only a lack of knowledge or in some cases, desperation. Nobody wants to pay more interest to their mortgage lender than they have too. Some homeowners are not aware they have gone onto their lenders SVR and therefore haven't done anything about getting off it. Some have left it too late and whilst they are awaiting their remortgage to complete they are stuck paying the high interest in the meantime. Have you had customers who have been paying a mortgage loyalty penalty? Yes, many. I currently have a client on her lenders SVR rate now struggling to pay a huge mortgage payment that is unaffordable to her, due to a change of circumstances in her home life. Marriage ended, she has remained in the family home, current mortgage deal came to an end, existing lender will not allow her to convert the mortgage from joint to sole onto a new deal due to affordability and she has been sitting on her lenders SVR for over a year now which almost doubled her mortgage payment while the sale goes through. More can be done to educate those who have taken out a mortgage for the first time, to ensure that way ahead of their deal end date they are considering their options to ensure they never revert to the SVR and pay more than they have too. Is this becoming more common? No luckily I would say brokers and the media are doing a great job in educating their own clients, or other homeowners through the media to help them understand the importance of not reverting to the Lenders SVR and what can be done to prevent it. What “alternative solutions” could there be to high SVRs? Lenders could potentially introduce shorter term fixed rates for homeowners who's deals are coming to an end, but not quite ready to 'Fix' into a new longer term mortgage deal due to personal circumstances. What advice would you give customers? Plan plan and plan. Put the date in your diary that your mortgage is coming to the end of the current deal, count back 5-6 months, and contact your broker then. If they are good, they will have already contacted you. New deals can be reserved 3, sometimes 6 months ahead of your current deal ending. if you do not have a broker and you are not sure what to do next about your mortgage, look for a whole of market independent mortgage advisor with great clients reviews!
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Mark Hosker
Mortgage Adviser at Cyborg Finance
"Homeowners can often remortgage to secure today's best mortgage rates up to six months before paying the Standard Variable Rate (SVR). They can often 'rate switch' the same lender up to three months before paying the SVR with the easist finance process I've ever seen. This is not a 'loyalty penalty' as Citizens Advice rebrands it but an lethargy penalty." "If you are on SVR or the date is coming up in 3-6 months, contact your independent mortgage adviser. The majority of people should never have to pay Standard Variable Rates (SVR)."
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Jamie Lennox
Director at Dimora Mortgages
By using a broker, customers being left on a standard variable rate should be a thing of the past. Brokers are likely to get in touch prior to their fixed deal ending to look at options available with a new lender versus what rate their existing lender is prepared to offer to fix in again. Banks also write to a customer a number of months in advance to remind them their deal is expiring, with many also listing their options available if they refix with them. Therefore it should only occur if there is a lack of action taken by the customer.
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Paul Neal
Mortgages & Equity Release Advisor at First Choice Financial Services
"It's so common and it's such a easy way to save money. Its usually the older generation who feel some kind of loyalty to their lender, unfortunately the lenders will show no loyalty to you. It's such a simple process to remortgage with the help of a broker, provided you fit the criteria you could see a huge saving by getting on a new fixed rate.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
People should always explore their options with the help of a mortgage broker 3-6 months before the end of any deal they have; there is no reason why anyone should have to pay the lender's Standard Variable Rate (but there are a couple of instances where you may choose to pay it, for example if you are looking to move home). A good mortgage broker will then be able to look at the deals your current lender can offer you as an existing customer, generally with no need for any underwriting, and compare them with a wide range of deals from other lenders, to see if another deal stands heads and shoulders above the best deal your current bank or building society is offering. In either situation your chosen broker can then help to facilitate the switch for you in most cases, hopefully saving you time as well as money.
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Graham Cox
Director at Bridging Hub
A surprising number of people approach us in a panic, either because they've already been moved onto the SVR or are about to be. I think more regular and earlier communication from lenders is required, long before a fixed, discount or tracker deal comes to an end. A good solution could be to offer more lifetime or long-term (10-15 year) fix rate deals, like they do in the USA. Whilst the cost may be higher, when you factor in the fees incurred by remortgaging every few years, the difference probably wouldn't be huge. And it will remove the uncertainty and worry for borrowers.
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
1. Have you had customers who have been paying a mortgage loyalty penalty? Yes I find around 80% of clients that are not landlords are on SVR and have been for years without realising how much money they could be saving. 2. Is this becoming more common? I think so, rates over the last few years have been so low even on the SVR I think a lot of people have just thought they will stay on the SVR for ease until rates increase which they now are. 3. What “alternative solutions” could there be to high SVRs? I believe that lenders should offer their existing clients lower rates than what they offer to the rest of the market. It seems so contradictory and unfair that the existing clients are not able to secure the same low rates from their existing lender that new borrowers to that lender would. 4. What advice would you give customers? Make a reminder as to when your fixed rate ends and contact a broker 6 months prior so you can have a remortgage in place for as soon as you current fixed rate ends. You will save so much money and hassle!