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Citizens Advice calls on FCA to tackle SVR penalty

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  • 27/07/2017
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Citizens Advice calls on FCA to tackle SVR penalty
Citizens Advice Bureau has called on the Financial Conduct Authority (FCA) to make all lenders raise awareness to clients about the extra costs of being on a standard variable rate (SVR) mortgage.

It also wants the regulator to consider changing the name of the default mortgage rate to emphasise the difference – it suggested using expired rate instead.

Citizens Advice made the calls after conducting an analysis which found 83% of people currently on a standard variable rate (around 1.2 million) would be better off if they switched to a new deal.

Citizens Advice chief executive Gillian Guy said: “More than a million loyal mortgage customers are being stung with higher interest charges when their fixed deals end.

“But two thirds of borrowers say their lender has never told them they could save money by switching.

“Lenders must be more upfront and provide their customers with clear information about what could happen to the cost of their loan once the fixed term period ends,” she added.

 

Comparing the big six

The charity compared the interest rates of the UK’s six largest mortgage providers to find out how much a typical standard variable rate (SVR) customer could save by switching to each provider’s cheapest fixed term deal.

It found these customers faced an average annual loyalty penalty of £439 after two-year fixed mortgage deals expired.

One in 10 people were paying more than £1,000 a year extra by staying on the standard variable rate.

And first-time buyers, who typically have more debt and more time left on their mortgage, face paying an extra £1,359 a year once their two-year fixed deal expires.

 

Customer inertia

In response to the report, Trussle CEO and Founder Ishaan Malhi noted that while most mortgage borrowers understood they needed to consider switching when their initial fixed period came to an end, so many were failing to do so.

Last week the broker published its own research calling for a Mortgage Switch Guarantee to be enacted.

“From our own research, we’ve found there are a number of causes of this inertia, which the industry could address collectively,” he said.

“We agree that lenders need to nudge their customers into action more often and that there needs to be greater standardisation of the way that rates are advertised so that consumers can easily compare.

“It seems utterly counterintuitive that a market should punish its customers for loyalty and it’s clear that something needs to change,” he added.

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