19 September 2014
Not knowing your mortgage rate could leave you paying over the odds
Mortgage holders in England and Wales are at risk of being caught out by interest rate rises as almost half admit to being uncertain of the rate charged on their existing mortgage in a recent survey.
The survey of 1000 mortgage holders from England and Wales carried out by Principality Building Society found that while 87% are able to state the amount of their monthly mortgage repayment, only 52% know with certainty the interest rate of their current mortgage.
Almost a quarter of mortgage holders were unaware that a rise in the Bank of England base rate would ultimately be bad news for mortgage holders with five per cent wrongly believing a rise in Bank of England rates would actually be good news for mortgage holders – with the resulting uncertainty meaning that customers are not getting the right deal which is in their best interests.
Commenting on the findings, Julie-Ann Haines, Customer Director at Wales’ largest building society, said: “We would encourage you to take time now to get to know your rate and the finer details of your mortgage so you find out about increases in your monthly payment before Bank of England rates increase.
“We are expecting a rise in the Bank of England base rate in the next few months but this is likely to be a very small rise occurring most probably in the first quarter of 2015. In real terms, a quarter per cent rise on the estimated average mortgage of £113,549 equates to around an extra £23.66 a month or less than £6 per week* – which should be manageable for the majority. However, rates will differ depending on the amount you have borrowed and period you have borrowed it for. Over the course of the next few years base rates are expected to increase further so homeowners should do the calculation on an online mortgage calculator or speak to their mortgage adviser to estimate what a larger rise may mean for you. But the key to responsible mortgage management is to be on the front foot, know your product and anticipate any change in rate before you see its impact on your bank statement. It’s tough to do that if you don’t know your rate in the first place.”
The survey highlighted that basic knowledge of mortgage products among customers was strong, with 95% able to name the provider with which their product is held, 74% knowing how much is owed on their mortgage and 76% aware of the date at which the mortgage will be repaid. Knowledge of other important information was low, however, with only one in three (36%) able to state the current loan to value of their mortgage.
Julie-Ann continued: “For most homeowners the mortgage repayment is their biggest monthly financial outgoing so having a mortgage that meets your needs is essential. Just taking half an hour a month to refresh their product knowledge or meeting a mortgage adviser to ensure the mortgage is right for them can help customers prepare for any potential changes which could considerably affect their outgoings.”
Of the factors most likely to attract a customer to a mortgage, interest rate was the strongest with 61% of mortgage holders claiming the rate would most likely draw them to a mortgage. Advice from a financial advisor (8%) the financial safety of the lender (7%) and having an existing relationship with the provider (4%) were other factors likely to influence a customer’s decision.
One in five of those questioned stated that they do not change their mortgage.
Julie-Ann added: “It’s clear that interest rates are a major draw toward mortgages but factors such as advice and the reliability of the lender clearly also have an influence. The important thing to note is that mortgages aren’t a one-off purchase and keeping abreast of the circumstances of a mortgage can help customers ensure that their mortgage continues to suit their circumstances.”
*Based on an estimated outstanding mortgage of £113,549 using data from The Money Charity Debt Statistics January 2014 Edition.
The survey was conducted by Future Focus Research on behalf of Principality Building Society