Homeowners remortgaging on Fridays or at weekends face £100+ in extra costs
Every week, thousands of homeowners who remortgage to new lenders are paying extra cash – sometimes £100+ – simply because their old deals end on a Friday, Saturday or a bank holiday.
This is because when your current mortgage deal expires, you can't move on to a new deal until the next working day. In the meantime, you'll be shifted to your existing lender's standard variable rate (SVR) – which can be up to five times more expensive than the cheapest mortgage rates currently available.
This means homeowners facing this problem could end up paying anything from a couple of pounds to more than £100 per day in extra interest, depending on how big their mortgage is.
Why are some homeowners paying extra?
For example, if your current deal ends on a Friday, your new deal won't kick in until the Monday after, meaning you'll end up spending two days on your current lender's SVR.
On a £150,000 mortgage with an SVR of 4.99% and with a new mortgage rate of 1.29%, this 'weekend penalty' could cost you an extra £30, while on a £650,000 mortgage, it could be more than £120 compared with what you'd pay if your deal was switched over the next day.
With Christmas around the corner, this could come as an unpleasant surprise to anyone whose deal is coming to an end on Christmas Eve, as you'd be stuck on your lender's SVR for two days – Christmas Day and Boxing Day.
This issue only affects homeowners switching to another lender. This is due to the fact that when you change lenders you need to transfer your mortgage debt from your old lender to the new one via a solicitor. This is not the case when you simply go for another deal with your existing lender.
However, with around 9,000 homeowners remortgaging to new lenders every week, according to UK Finance it's likely that thousands of people could be affected by this issue every single week. This is because a mortgage deal can end any day of the week.
While this extra charge would appear on your 'redemption statement' – a document drafted by your solicitor outlining all your final charges – customers are rarely shown this. Many are simply unaware of this, as the new deal they are switching to is typically cheaper, meaning they'd have seen an overall drop in cost.
If you are looking to remortgage, our Remortgage Guide has tips on when you should remortgage, when you shouldn't, mortgage types and how to get the top deals.
My deals ends on a Friday – how much extra will it cost?
It all depends on how big your mortgage debt is and what the SVR is like compared to the new interest rate you're switching to.
For example, say you're currently with Coventry Building Society – which has an SVR of 4.99% – with a mortgage of £150,000. If you're switching over to a two-year fix with a 1.29% rate, you'd end up paying £20.51 for each day you're on the SVR, compared to £5.30/day on the new fix. Therefore, if you're on the SVR for two extra days, you'd be overpaying by £30.42 in total over that weekend.
If your mortgage debt was £650,000 and your deal was set to end over Easter – when you have four non-working days in a row – you'd have to shell out £263.56 in extra interest over the four-day break.
|How much extra will a few days on SVR cost me? A typical example|
|Loan amount||Daily interest on a top two-year fix (1.29%)||Daily interest on a typical SVR (4.99%)||Extra interest cost for one day||Extra interest cost for two days||Extra interest cost for four days|
|Indicative figures calculated on an interest-only basis. Interest amounts will differ slightly for repayment mortgages depending on balance and remaining term.|
How can I avoid it?
Unfortunately, there's not much you can do about this.
- Most lenders offer customers new deals with pre-determined end dates – a bit like buying a box of cereal with an expiry date. However, some lenders will offer deals that expire from your specific date of completion. So if you find a great deal, it's worth asking if your lender can (or will) do this to avoid your deal ending on a Friday, at the weekend or during a public holiday.
- You can avoid it if you're sticking with your current lender – through a product transfer. However, you might find that there are better deals with other lenders which would easily cancel out the 'extra charge'.
- While you can exit your current deal early, it's strongly advisable NOT to do so as most deals come with steep early repayment charges – often in the region of £1,000s, if not £10,000s. This would far outweigh payment of any extra SVR interest.
Johanna Noble, money editor at MoneySavingExpert.com, said: "While there's not much you can do about it, it's always worth checking what day of the week the end date falls on when you're looking for a new mortgage deal. That way, you'll be able to factor in any potential extra costs. In order to treat customers fairly, it's also vital that mortgage lenders are transparent about the extra cost."
This issue also highlights the need for homeowners to really be ahead of the game, and start their remortgage process early.
David Hollingworth of L&C Mortgages, said: "Ideally, you should start looking for new deals a good three months in advance. If you leave it to the last minute and you encounter any delays in the process, you could end up on your lender's SVR for even longer. And while a day or two is bad enough, a month could easily add up to hundreds of pounds."
What does the regulator say about this?
The Financial Conduct Authority, which regulates lenders, explicitly states that "all firms must be able to show consistently that fair treatment of customers is at the heart of their business model" and that customers should not "face unreasonable post-sale barriers". However, it declined to comment on this particular issue.
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