According to research from Citizens Advice, which analysed 165,000 budgets of people who approached the company for debt advice, eight per cent of people, or 11 per cent of fixed rate mortgage customers, have come to the end of their fixed rate deal and have not switched.
This means that they are “overpaying” as they will be paying the Standard Variable Rate (SVR), according to the charity.
The Financial Conduct Authority (FCA) has previously estimated that mortgage customers on SVRs could be overpaying by £1,000 a year on average. The research was last done in 2020.
The report also found that 23 per cent had struggled with mortgage repayments and 38 per cent had lost sleep over their finances.
Citizens Advice had said that the FCA had made voluntary agreements with firms to give existing customers on reversion rate a chance to move to a new deal if they met certain criteria, but the charity said that this “doesn’t go far enough”.
It said that to avoid paying the SVR customers needed to switch before the end of the fixed rate term, but many people did not.
Around one in four who did not switch said that it was too difficult or time consuming.
Citizens Advice said that 60 per cent of people said that they did not take SVR into account when taking out a mortgage and a third who didn’t switch were not aware of the SVR when taking out a mortgage.
The firm continued that there was “little incentive” for firms to compete to offer lower SVR rates to attract new customers, so those who revert to the SVR are worse off.
Citizens Advice noted that high SVRs would likely not comply with new Consumer Duty principle around fair value and should therefore be “addressed urgently”.
It urged the FCA to explore “alternative models” to high SVRs at the end of fixed rate terms so consumers are not overcharged.
The firm noted that its evidence showed that it wanted “similar ambition” from the regulator on mortgages as it had done on insurance.
It added that that there had been no action taken by the Financial Conduct Authority (FCA) since 2018 on mortgage loyalty penalties since the company had made a super complaint on loyalty penalties covering mobile, broadband, home insurance, mortgages and savings market.
The regulator identified around £3.4bn in combined loyalty penalties, with around £800m in annual mortgage penalties identified.
Dame Clare Moriarty, chief executive of Citizens Advice, said: “The government did the right thing by strengthening its cost of living help, but finally fixing the loyalty penalty could put more than twice as much money back in some people’s pockets as the £400 October energy grant.
“As we all pull together to weather the cost of living crisis, it’s incredibly frustrating to see there are still firms out there that prefer to help themselves than help the people who’re most in need.
“The time for piecemeal pledges has passed. Regulators must tackle the loyalty penalty across these three markets – no more excuses, no more delays.”
