Remortgaging equivalent to 10% pay rise
Failing to remortgage could cost you equivalent to a 10% pay rise
Tuesday, 09, Aug 2005 04:29
Millions of mortgage holders could receive savings equivalent to a ten per cent pay rise by switching to a cheaper deal.
That is the finding of a new study by mortgage broker John Charcol.
"No matter how many times some consumers read about the savings they could make, they will still sit on their hands and do nothing. We are hoping that showing what they are wasting in pure monetary terms will finally help the message sink home. If someone told me I was turning down a per cent pay rise I would do something about it," said Drew Wotherspoon of John Charcol.
Up to 30 per cent of UK mortgage holders could make significant savings by moving away from their lender's standard variable rate.
For someone with a £100,000 mortgage, savings of £4,400 are available over two years - even after allowing for fees.
And for people on the standard rate of tax this figure can be increased by 22 per cent to reflect what the borrower would have paid in tax. For someone on a wage of £25,000 this is equivalent to a pay rise of 9.6 per cent.
"Remortgaging has become more and more prevalent in the UK market, but there is still some way to go," Mr Wotherspoon commented.
He added: "There is also the misconception that remortgaging is a hassle and takes up too much time and effort.
"The process is relatively painless for most people and should not take more than 2 hours of a borrower's time in total. Of course, should you choose to remortgage online, this time, with some organisations, will reduce dramatically. Put another way, you are earning £2,407 an hour for some consultancy work. It really is a no-brainer."
But it is not just people on their lender's standard variable rate that need to look into remortgaging.
Bradford & Bingley points out that around 800,000 borrowers have either come to the end or are about to come to the end of cheap fixed rate deals taken out two years ago.
But many are doing nothing about this.
Council of Mortgage Lenders figures show that remortgage levels are dropping - falling in June for the sixth consecutive month.
But many could be in for the shock of their lives, as rates could jump from as low as 3.3 per cent to around 6.5 per cent when their fixed-rate deal ends.
This is because in the spring and summer of 2003 two-year fixed rates were priced between three and four per cent, in some cases lower than their discount and tracker counterparts, encouraging almost a million people to take out fixed-rate deals.
But all mortgage rates have risen considerably since then, with standard variable rates hovering around 6.5 per cent.
Duncan Pownall, mortgage development manager for Bradford & Bingley, commented: "It's vital that people take steps now in order to avoid a potential leap in their mortgage costs. Rates are higher than they were two years ago but this makes it even more essential for people to remortgage onto a competitive deal now and keep their repayments as low as possible. Hopefully the base rate cut last week will provoke people into action."
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