Homeowners are paying thousands of pounds more than necessary for their mortgage because market conditions make it almost impossible to switch.
December is expected to be one of the busiest months of the year for mortgage renewals, with thousands of fixed-rate deals due to expire this month. However, those reaching the end of their current deal will enter a turbulent market with restricted choice and long delays at banks.
Homeowners have become reliant on “product transfer” offers since lockdown began, according to property experts. These are cases where, rather than remortgage to a cheaper deal at a rival bank, homeowners ask their current provider to move them to another loan.
This avoids the need for new “affordability checks”. However, these deals often have much higher rates than those offered to new customers.
Data published by UK Finance, the banking trade body, shows that the number of internal transfers has rocketed since the start of the year. These loans now account for 77pc of all refinancing activity compared to 71pc in February, the last full month before lockdown.
Since the Covid crisis began in the spring processing times at banks have lengthened significantly. Mortgage lenders have had to contend with the vast majority of staff working from home plus a boom in the housing market, both of which have added pressure on to their systems.
In the worst cases, simple mortgage transactions can now take weeks to process. Chris Sykes of mortgage broker Private Finance said this had prompted many customers to stick with their current lender and suffer higher rates.
“Some lenders penalise existing customers by 0.3 percentage points or more compared to new customers looking to remortgage,” he said. “This doesn’t sound like a lot but when borrowing against a house it can cost a borrower thousands in extra repayments.”
However, Mr Sykes said that many people were willing to pay extra to avoid a full remortgage. “If it only saves you £500 over a two year period then often people would rather save themselves the hassle of going through a remortgage and legal process,” he added.