Mortgage product ignorance is benefitting banks

Mortgage ignorance among consumers is letting banks make huge profits, according to a price comparison site, which has claimed the institutions have recorded an income increase of 120 per cent in the last year.

The institutions are set to make even more money as thousands of consumers come off a fixed-rate mortgage this year, Moneyextra.com has stated.

According to research conducted by the financial experts, four out of ten people (42 per cent) risk being hit with inflated standard variable rates (SVR) that are being offered by mortgage lenders when they come out of their fixed-rate deals.

The majority of lenders are offering deals with high rates, which has contributed to the current average SVR being 4.19 per cent, which is a huge increase from the rate of 1.9 per cent average that was recorded in the second quarter of 2008.

The institutions stand to make a lot of money because the current average is more than eight times higher than the base rate, which stands at 0.5 per cent, with the highest rate clocking in at 5.99 per cent, the comparison site stated.

"Such a high margin is unheard of and it's scandalous that lenders are allowed to continue fleecing their customers," Moneyextra.com managing director Richard Mason said.

"It's not unreasonable for mortgage holders to expect that if the base rate drops, so too will their lender's rates decrease - however current SVR's are entirely out of proportion."

He went on to call upon banks "to bring down their extortionate lending rates to a level that is fair and just to the consumer", and advised people coming off fixed rates "to clean up their credit record and shop around for a good deal".

Gaining a general understanding of the terminology could also be beneficial because the research also found that 85 per cent of consumers do not know the actual definition of the term SVR.

Some thought the acronym stands for 'saving for retirement', and the few who understood thought that their lender's SVR is just 1.77 per cent.

Further research from Moneyfacts has revealed that the average fixed-rate mortgage has risen in the last month and those looking for long-term deals are facing higher rates.

According to the organisation, Barnsley, Britannia, Coventry, Halifax, Newbury, Principality, Royal Bank of Scotland Intermediary mortgages, Woolwich and Yorkshire Building Society have all increased their rates recently.

"In the last few weeks, swap rates for longer term deals have increased and this is being passed on through higher mortgage rates," explained Michelle Slade, an analyst at Moneyfacts.

"Two-year swap rates have continued their downward trend, but this is not being reflected in new mortgage rates. Lenders are in effect taking bigger margins from the more popular shorter term fixed deals."

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