UK mortgage lenders push homeowners onto standard variable rates (SVR) of up to 5.99%1 APR if they do not pro-actively switch to a new mortgage when their existing deal comes to an end
The majority of lenders have reduced SVRs by 0.25% following the base rate decrease in August, but they still cost mortgage holders an average of 4.16%2 APR in interest each year
More than one in five3 homeowners are sitting on an SVR, costing them up to £3,395 more a year in repayments compared to a market leading two year fixed rate deal at 0.99% APR4
In total, homeowners on lenders' SVRs are paying almost £6 billion6 more each year than they would if they switched to a market leading mortgage deal
Most UK lenders have now reduced their standard variable rates (SVRs) for mortgage customers by 0.25%. This is in response to the Bank of England's base rate reduction which took place in August.
However, industry insight from independent comparison website money.co.uk reveals that almost two million mortgage holders are sitting on these standard rates, paying up to 5.99% APR a year in interest. With the market leading two year fixed rate mortgage charging less than a quarter of this at 0.99% APR4, switching to this deal could save £3,395 in the first year alone - a whopping £2834 a month.
Over the term of the two year mortgage deal this is total saving of £6,790 including fees.
For those that are more comfortable on a longer term fixed rate deal, such as five years, the savings made by moving are still significant. For people that are on an SVR of 4.74% APR, moving to a market leading five year fixed rate mortgage deal at just 1.98% APR5 will save £2,5816 in year one or £12,905 over the full five year term.
Each month, this equates to £215 which could be used to overpay your mortgage and clear the debt quicker or put back in the pot for other household bills and expenses.
It's no surprise the amount you could save by switching is so eye watering - after all, your mortgage is generally the biggest monthly bill you pay. Mortgage rates are currently at rock bottom, so anyone sitting on their lenders' standard variable rate (SVR) is almost certainly paying a lot more than they should be.
Just because you're not moving house you don't have to stick with the same mortgage you had when you bought it, or even the same lender. If you've been in your home more than a couple of years and haven't switched mortgage since you moved in there is a high chance you are on your lenders SVR and could save a bundle by shifting.
It's worth checking because the savings could make a significant impact on your life. It could mean a new car, an extra holiday, overpaying your existing mortgage, being able to save or paying down debts that are keeping you awake at night.
If you are worried about bad credit and think switching isn't an option for you don't write it off until you've spoken to a broker as you may have some options. The key thing is to check your rate and your monthly payments and work out if you can save yourself some money by switching to a cheaper deal.Source: Hannah Maundrell, Editor in Chief money.co.uk“
Hannah's ten top tips for checking your existing mortgage deal
First things first - check how much equity you've got in your property - that's how much you own vs the amount you've got mortgaged. If you're not sure what your property is worth you should look at getting it valued; here's how to do it for free.
Speak to your existing lender - see what deals they can offer but don't commit. Be aware if you switch to a new mortgage with your existing lender you may still need to be credit and affordability checked.
Check the fees - it's not just about the rate, you need to factor in fees too. Our mortgage comparison helps you compare how much the mortgage costs from different lenders so you can see which is cheapest for the amount you want to borrow.
Surveys and solicitors - if you're switching lender you may also need to pay for a survey and a solicitor although some lenders will pay towards the cost of this so make sure you check.
Independent advice is key - if you need help then speak to a mortgage broker. Go for one that's independent and can compare deals from every lender.
Clean credit - check your credit report before you apply to make sure it's accurate and paints a good picture of you; here's how. If you have anything you need to correct make sure you get it rectified before you apply.
Payslips and bank statements - get together three months' of bank statements and payslips. Lenders look at affordability so it's worth having at least three months of sensible spending before you submit your application for a new deal to maximise the chance you'll get accepted.
Other applications for credit - time applications for new credit cards, bank accounts or loans carefully as this could impact your chance of getting the mortgage deal you want. Consider holding off until after you've finalised your new mortgage deal unless you need them right away.
Pay fees upfront - if you can afford to pay fees for your new mortgage upfront this is often cheaper in the long run. Repaying £1,000 for example over 25 years will hugely increase fee.
Need more help - you can read this for more information on finding a deal to help you save, maximising your chance of getting accepted and top tips to navigate the process and pitfalls.
1. Newcastle Building Society's 5.99% APR is the highest SVR for residential mortgage customers; correct as at 28th September 2016.
2. This is based on the standard variable rates of the UKs top ten mortgage lenders by market share which range from 3.69% APR with HSBC Bank up to 4.74% APR with Yorkshire Building Society. These ten mortgage providers hold a total market share of 82.2% - source CML.
3. According to the CML there are 11.1 million mortgage holders in the UK, 18% of which are paying their providers standard variable rate (SVR). This totals 1,998,000 UK mortgage holders.
4. Table one - all data and information in this table is correct as at 28th September 2016, all calculations include fees and charges. These are the top ten mortgage providers by market share totalling 82.2% - source CML.
5. Yorkshire Building Society offer a five year fixed rate deal at just 1.98% APR.
6. All savings calculations are based on money.co.uk industry analysis and analyst calculations.