Just one in four (27%) mortgage-paying homeowners understand how cuts to the Bank of England’s (BoE) base rate could affect their mortgage payments, according to new research by Trussle.
In August 2016, the BoE made the first adjustment to the rate in over seven years, cutting it from 0.5% to 0.25% in August this year. As a result, mortgage rates soon fell.
Tracker rates dropped by 0.25% in line with the BoE’s action, while fixed rates also hit record lows, with two-year fixed rates available for as little as 1.39%.
However lender Standard Variable Rates (SVRs), the ‘default’ rates that borrowers often find themselves on as soon as an initial rate has ended, did not drop nearly as far. The average SVR before August’s base rate change was 4.8%, but by November had fallen only 0.17% to 4.63%, revealed Trussle.
Borrowers could save £3,500 a year by mortgaging
As a result of the widening gap between the best and worst rates on the market, people stuck on expensive SVRs could now save a further £380 per year by switching to a market leading fixed rate.
What had been an average annual saving of £3,120 has grown to £3,500, as a result of August’s base rate cut.
Men twice as likely to understand base rate effect
While 27% of mortgage borrowers in Trussle’s study, which was carried out by YouGov, knew how a cut to the base rate would affect their own mortgage payments, there was a huge disparity between male and female borrowers.
Over a third (35%) of men claimed to understand the relationship, compared to just 19% of women. This gender divide was also apparent when respondents were asked whether they kept track of their mortgage payments, with a third (33%) of men claiming they did so, compared to just 23% of women.
Just over one in 20 have considered switching mortgage
In the study, borrowers were also asked if they were happy with their mortgage. Only a third (36%) of borrowers said they were content with what they were paying in the current environment of rock-bottom mortgage rates. This could be explained by the one in three borrowers currently on an SVR.
Despite the high proportion of people unhappy with their mortgage, just over one in 20 borrowers (6%) have considered switching to a better rate since the Bank of England cut the base rate to 0.25% in August. When asked what had ever stopped them from switching, one in five (20%) said the process would be too much hassle, while 14% said that it all seemed too complicated.
Ishaan Malhi, CEO and founder of Trussle said: “The mortgage sector is shrouded in a level of complexity and jargon that continues to discourage borrowers from acting swiftly to secure a better deal. The base rate is the most significant factor affecting mortgage rates, so it's a shame that so few understand its effect on the most important financial commitment of their life.
"The industry has a role to play in demystifying mortgages for consumers, educating borrowers to make mortgages more accessible, but it’s vital that borrowers are clued up about when and how they should switch to a better rate, especially since today's rates are as low as they've ever been."