UK mortgage holders could be overpaying by more than £2.1 billion in interest each year
In such uncertain economic times, it is unsurprising that more people are taking the time to assess their financial situations and see what savings they could be making.
We decided to do some research and find out just how much money UK mortgage holders could be unnecessarily overpaying by remaining on their lenders SVR.
What we found truly shocked us. Conservatively estimated, the amount overpaid is £2.1 billion every year and could be as high as £9.8 billion. This could represent a potential yearly saving of almost £2,000 per household by moving to a more favourable rate.
How did we work it out?
For arguments sake, we’ve taken a far lower figure at 10% to give a conservative estimate. If 10% of 11 million mortgage holders are on the SVR then this would equate to an estimated 1.1 million mortgages.
To get a sample of interest rates, we looked to Halifax as they are the UKs largest lender.
Halifax are currently offering a mortgage rate of 1.61% to remortgage customers which will be fixed for 2 years. In comparison their standard variable rate sits at 3.99%. (correct as of 23/02/22)
So, lets run some numbers:
Interest rate: 3.99%
Mortgage term: 20 years
Monthly repayments: £835
Interest rate: 1.61%
Mortgage term: 20 years
Monthly repayments: £673
As shown above, the difference in monthly repayment equals £162 per month.
So, customers on the SVR could be paying as much as £162 per month more than they would be if they were on a fixed rate. This is an additional £1,944 per year.
Which over the 20-year term would equate to £39,880 extra in interest.
As we’ve estimated as many as 1.1 million homeowners could be on SVRs then the total amount per year could be as much as £2,138,400,000, collected by lenders per year over and above what they would if their customers were on fixed rates.
The additional £2.1 billion collected is due to the customers being on a higher interest rate, so even though they are paying more, they won’t be paying off the capital on their mortgage off any quicker.
If Experian were correct by estimating that 46% of mortgage holders are on the SVR then the number edges into the ridiculous and a could be as high as £9.8 billion each year, the equivalent of over 39,000 Ferraris.
All the numbers above are estimates and for illustrative purposes only.
Regardless of where the true number lies, the reality is that many brits are paying over the odds for their mortgage whilst achieving nothing other than lining their lenders pockets.