Around 630,000 mortgage customers are paying a loyalty penalty, meaning they could potentially pay an average of £1,000 more a year on their mortgage.
According to a study by Citizens Advice, which analyzed 165,000 budgets of people who contacted the company for debt advice, 8% of people, or 11% of fixed rate mortgage customers, made it to the end of their their fixed rate contract and did not switch.
This means 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 SVR could overpay £1,000 a year on average. The last search was carried out in 2020.
The report also revealed that 23% had struggled to pay their mortgage and 38% had lost sleep over their finances.
Citizens Advice had said that the FCA had entered into voluntary agreements with companies to give existing customers on the reversion rate a chance to switch to a new agreement if they met certain criteria, but the charity said that this “doesn’t go far enough”.
He said to avoid paying SVR customers had to switch before the fixed rate term ended, but many people didn’t.
About one in four who didn’t change said it was too hard or too long.
Citizens Advice said 60% of people said they didn’t consider SVR when taking out a mortgage and a third who didn’t change were unaware of SVR when taking out a mortgage. taking out a mortgage loan.
The company continued that there was “little incentive” for companies to compete to offer lower SVR rates to attract new customers, so those returning to SVR are worse off.
Citizens Advice noted that high SVRs would likely not comply with the new consumer duty principle regarding fair value and should therefore be “addressed urgently”.
He urged the FCA to explore “alternative models” to high SVRs at the end of fixed rate terms so consumers are not overburdened.
The firm noted that its evidence showed it wanted “similar ambition” from the regulator on mortgages as it had on insurance.
He added that no action had been taken by the Financial Conduct Authority (FCA) since 2018 on mortgage loyalty penalties since the company had filed a super complaint on loyalty penalties covering mobile, broadband, l insurance, mortgages and the savings market.
The regulator has 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 has done the right thing by stepping up its cost-of-living aid, but ultimately fixing the loyalty penalty could put back more than twice as much money in some people’s pockets than the £400. October energy grant.
“As we all rally together to overcome the cost of living crisis, it is extremely frustrating to see that there are still companies that would rather help themselves than help the people who need it the most. need.
“The time for piecemeal commitments is over. Regulators need to tackle the loyalty penalty in these three markets – no more excuses, no more delays.