Lloyds TSB Research Suggests Homeowners Won't Switch Products Before Rate Rise

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With MPC members voting 7-2 to keep rates on hold in June and commentators predicting that the first base rate rise may not happen until 2012, borrowers with variable rate mortgages are not yet thinking about planning for an increase, according to research by Lloyds TSB.

"Borrowers should take a good look at their options"

Impact of base rate rise
For a typical borrower on a variable rate product, an increase of 0.50% will lead to an increase of around £28* on their monthly mortgage payments. However, 58% of borrowers say they do not know how much an increase in the Bank of England base rate would cost them. Just 35% of women, and 37% of over 65s, say they know how much more expensive their mortgage will be when base rate rises.

Few planning for an imminent rise
Homeowners have become accustomed to record low rates, and few expect that to change in the near future. In line with latest predictions, nearly a quarter of homeowners (23%) expect base rate to stay at 0.50% for the rest of 2011, whilst 18% admit that they do not know when an increase is likely.

16% of borrowers expect an increase in September, and 11% are still planning for a rise in August.

Stick or twist
Nearly half of borrowers (46%) on a variable mortgage plan to stick with their current
mortgage deal for at least the next two years.

One in ten borrowers will only look at new products once rates start to increase, but 6% won't move products in the next two years unless they move house. Just 6% of borrowers are already reviewing their options, but a further 9% plan to change before their payments increase.

Even when questioned in a scenario where a rate increase is certain, a quarter of borrowers wouldn't consider switching mortgages from their current deal.

  •     Just 8% would move if their payments went up by less than £25
  •     10% would look to change deals if they saw an increase between £25 and £50
  •     13% say it would take an extra £100 on their payment before they consider moving
  •     8% would need to see their monthly payments double before switching products

Product choices
Whilst the general consensus across mortgage commentators point to longer term fixed options for those coming off variable rates, just 11% of homeowners say they would choose a 5 year fixed rate product if they looked to move deals.

One third of borrowers say that they would make their choice simply based on whichever offered cheaper monthly payments at the time, even if that payment was likely to increase in future. 18% haven't yet considered what type of product they would look to switch to, and 6% say they would choose another tracker deal irrespective of price. One in four borrowers (26%) would not be willing to pay any more money for the certainty of a fixed rate, and would rather take a cheaper tracker product despite likely increases.

Stephen Noakes, commercial director of mortgages at Lloyds TSB states, "It's important to remember that a base rate this low is not the norm. Switching to a fixed deal now won't be the right thing for everyone, but borrowers should take a good look at their options, and think about how much they value the certainty of fixed monthly payments."

Lloyds TSB is currently running a series of Mortgage Open Days across the country for homebuyers and homeowners to talk to mortgage advisers about their options.

Stephen concludes, "Our research shows that homeowners have a lot of questions about what rate increases will mean for them. Mortgage Open Days provide a great opportunity to work through what options are out there. "

Additional info:

  •     *Based on a £110,000 capital repayment mortgage, 20 years remaining with an increase of 0.50% between 2.5% (current Lloyds TSB/C&G SVR) and 3%
  •     Research of 835 mortgage borrowers conducted by ICM research between 25 and 26 May 2011.
  •     When questioned where they would go if looking for a new product:
  •     40% would go to their existing mortgage lender first if they were looking to switch to a fixed rate product.
  •     31% would use the internet to review the options themselves
  •     20% would go to an independent mortgage broker
  •     4% would approach a lender other than their own.


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Nicholas Osbourne
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