30th September 2019
Misplaced mortgage loyalty costs 540% more than other household ‘loyalty penalties’ combined
- The two million homeowners who don’t switch their Standard Variable Rate mortgage7 overpay by £4,500 per year on average1
- By contrast, switching inertia with household insurance, utility, broadband and mobile phone providers costs £831 per year6
- Online mortgage broker Trussle calls for a Mortgage Switch Guarantee to make mortgage switching fairer, potentially saving homeowners thousands of pounds each year
Homeowners who lapse onto their lender’s Standard Variable Rate (SVR) mortgage are facing the ‘ultimate loyalty penalty’ of £4,500 per year1 – according to research from online mortgage broker, Trussle.
The study, which comes a year after the Competition and Markets Authority (CMA) received the loyalty penalty ‘super complaint’, explored loyalty penalties across a number of different household bills. Gas and electricity fared the worst, after mortgages, as failing to switch tariffs costs bill payers £269 on average, per year2.
Those with household insurance could be overpaying by £238 per year by not switching deals3. Similarly, broadband customers face an average annual premium of £192 for not switching4. Meanwhile, those on a pay-monthly mobile phone deal face an annual penalty of £132 for not renegotiating their deal5.
Combined, the average annual loyalty penalty for gas and electricity, household insurance, broadband and mobile phone customers stands at £8316.
However, the loyalty penalty associated with mortgage switching inertia works out at a staggering £4,500 per year - 540% more than the other bills combined6!
TABLE: Loyalty penalties by bill
The scale of the problem is illustrated by the two million borrowers who are currently sat on an SVR7. This means they collectively risk missing out on £9 billion worth of savings a year by not switching to the best deal8.
Previous research from Trussle suggests poor communication is causing many borrowers to lapse onto their lender’s SVR. One in five (21%) said they couldn’t remember the last time their provider contacted them about their mortgage9. Almost twice as many (37%) say their lender or broker doesn’t do enough to keep them updated9.
However, there is evidence to suggest homeowners are beginning to open their eyes to the impact of falling onto an SVR. Official data shows a significant 16% year-on-year increase in the number of people switching deals with their existing provider10. 292,500 people carried out a ‘mortgage product transfer’ in the second quarter of 201910.
Yet, this spike means many homeowners could also be missing out on 99% of deals by simply changing products rather than considering other lenders9.
With mortgages being the largest source of household debt in the UK, and homeowners collectively wasting more than any other industry from failing to switch from expensive SVRs, Trussle is calling for lenders to sign up to the Mortgage Switch Guarantee to make mortgages fairer, more transparent and more accessible.
Founder and CEO of Trussle, Ishaan Malhi, comments: “Consumers are essentially being penalised for staying loyal to their providers and collectively overpaying billions of pounds across the mortgage, utility, product and service sectors.
“Mortgages are clearly the worst offender with the average loyalty penalty standing at £4,500 per year.
“Since the CMA received the super complaint last year we’re yet to see any real progress, despite assurances from the then-Government. Similarly, there’s been little movement from the mortgage industry.
“At Trussle, we’re campaigning for a Mortgage Switch Guarantee to make mortgages fairer. We want to ensure that lenders commit to a greater transparency to help borrowers switch easily and eliminate the mortgage loyalty penalty once and for all.”