UK borrowers who have seen their income fall due to the COVID-19 crisis may soon be paying thousands of pounds more in monthly repayments as one in three (32%) borrowers consider staying on their lender’s Standard Variable Rate (SVR) once their existing mortgage product expires, according to new research from Legal & General Mortgage Club
17 Mar 2021
For homeowners whose finances have been adversely impacted by the pandemic, exploring their mortgage options is essential to understanding where better alternatives are available, but the research suggests that the impact of COVID-19 is deterring thousands of borrowers with maturing loans from remortgaging. This could impact over 700,000 borrowers who will reach the end of their two- and five-year residential fixed-rate mortgages in 2021.
More than half (52%) of borrowers who have seen their income reduced as a result of the crisis are concerned that lenders will now be scrutinising their finances in more depth compared to pre-COVID levels. One in two (50%) are concerned that their decision to take a payment ‘holiday’ will affect their future mortgage options, and two thirds (67%) believe it will be harder to get a mortgage when furloughed. Perhaps unsurprisingly, those who have seen their incomes negatively impacted by the pandemic are also far more likely to feel ‘not confident’ about remortgaging compared to borrowers whose incomes have remained stable (14% and 3% respectively).
According to analysis from Legal & General Mortgage Club, moving onto a lender’s SVR could increase annual mortgage repayments by more than £2,500 when compared to borrowers who lock into an average two-year fixed rate product. This could potentially create further financial difficulty for homeowners at a time when their incomes may already be stretched or reduced, including the precited 4.7 million individuals who remain furloughed.
Even among those who don’t plan to revert to their lender’s SVR, over half (52%) say they are now more likely to stick with their current lender when looking for a new product, with well over a third (37%) doing so because they believe this will be the easiest way to secure a new deal.
Kevin Roberts, Director, Legal & General Mortgage Club: "While the coronavirus crisis has undoubtedly affected people’s finances in different ways, those who have seen their incomes drop will likely be finding this a particularly challenging time so it’s vital they avoid falling onto a reversion rate and paying more when there are other affordable options available. COVID-19 may have dampened the confidence of a large number of borrowers wanting to lock into a new rate, yet the cost of not exploring their refinance options could be significant. Even for those borrowers who have seen a reduction in income, there may well be products available that would save them money in the long term when compared to their lender’s SVR.
There are still thousands of great fixed rate-deals available, including furlough-friendly mortgages for those who have or continue to draw support from the Government’s Job Retention Scheme. The UK also has a thriving specialist lending sector designed to help borrowers with complex circumstances, from the self-employed to those who might have experienced a credit blip, many of whom can only be accessed through speaking with an independent adviser who could help these borrowers to save thousands of pounds in their mortgage repayments."
Established in 1836, Legal & General is one of the UK's leading financial services groups and a major global investor, with over £1.2 trillion in total assets under management* of which a third is international. We also provide powerful asset origination capabilities. Together, these underpin our leading retirement and protection solutions: we are a leading international player in pension risk transfer, in UK and US life insurance, and in UK workplace pensions and retirement income. Through inclusive capitalism, we aim to build a better society by investing in long-term assets that benefit everyone.
*at 31 Dec 2022