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PDS loyalty protection mortgage header

Have you been paying a loyalty penalty on your mortgage?

Loyalty is a great quality or so we think because when it comes to being loyal to your mortgage provider, it could end up costing you thousands every year in excessive fees. This usually occurs when a mortgage holder is automatically rolled onto their lender’s standard variable rate (SVR) once the initial fixed rate has expired.

Citizens Advice have recently published a report which found that around 1.2m people are being affected by these penalties on their mortgages. The average SVR payer on a two-year fixed rate deal will face a £439 a year penalty, though around 10% of mortgage holders are currently paying £1000 too much every year.

PDS loyalty penalty mortgage content

So as this problem seems to become more and more widespread as borrowers are not realising they are being moved onto these expensive rates, what can consumers do to protect themselves and save some money on their mortgage?

  • Set a reminder – Check when your current mortgage deal ends and set a reminder on your phone to speak to your lender three months before it comes to an end. The earlier you start to shop around the better as there can be hold up’s in the re-mortgaging process due to high demand for the product or around conveyancing.
  • Look out for letters – Most lenders will send you a letter a few months before your current deal comes to an end and this can be the perfect reminder for you to get looking for a new deal. Some lenders may also send you an email or text message reminder as well as or instead of postal communication.
  • Check your lender’s SVR – Although interest rates change, it is worth being aware of your lender’s SVR when you sign up for your mortgage. By doing this, it will give you a good idea of the difference you will be paying if you allow your mortgage to be automatically rolled over onto your lenders SVR.
  • Find a broker/lender you can trust – You should be able to trust and understand everything your lender/broker says with regards to your mortgage. As the financial industry regularly uses jargon, it can be difficult to understand what you are signing up to. Always ask your broker or lender to explain everything in layman’s terms as and when you need them to.
  • Compare the market – The rise of technology has seen the rise in online banks, lenders and services, such as Trussle and Habito, which allow you to compare the mortgage market in minutes. By doing this you can find the best deal for you based on interest rates, repayments and any other factors which may be important to you.
  • Be aware of the re-mortgage fee – Most lenders appoint solicitors when you change lender which cuts down on the amount of paperwork you will need to deal with. However, there is usually a re-mortgage fee added for switching lender so keep an eye out for any mortgage deals where you won’t have to pay this costly fee.

The mortgage market can be extremely complex and as a result, many borrowers just don’t have the time to shop around for the best deals. Some mortgage lenders tend to draw customers in with cheap deals which increase significantly over time and with many borrowers not understanding the market, they are stuck on high rates paying more than they need to.

Many experts see this attitude from lenders as unfair on consumers including Ishaan Malhi, chief executive of online broker Trussle, who spoke to CityAM to say; “it seems utterly counterintuitive that a market should punish its customers for loyalty and it’s clear that something needs to change.”

Consequently, they are calling on the Financial Conduct Authority (FCA) to make lenders improve the way they jolt their customers into action and standardise the way rates are advertised across the market so consumers can find it easier to compare.

So whether you are coming up to re-mortgage time or you want to look for a new deal, make sure you don’t get hit with a loyalty penalty on your mortgage. As we are not mortgage advisers, we recommend that you take advice from an independent mortgage adviser/broker for advice and to answer your questions.

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