Borrowers who have seen their income fall due to the COVID-19 pandemic may soon be paying thousands of pounds more in monthly repayments, research from Legal & General Mortgage Club has revealed.

A study from the mortgage club found that one in three (32%) borrowers consider staying on their lender’s Standard Variable Rate (SVR) once their existing mortgage product expires.

The research highlighted that the impact of COVID-19 is deterring thousands of borrowers with maturing loans from remortgaging – which 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. Legal & General also found that one in two (50%) are concerned that their decision to take a payment ‘holiday’ will affect their future mortgage options, while two-thirds (67%) believe it will be harder to get a mortgage when furloughed.

Legal & General Mortgage Club director, Kevin Roberts, commented: “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.”

Legal & General suggested that 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.

The mortgage club’s analysis showed this could potentially create further financial difficulty for homeowners at a time when their incomes may already be stretched or reduced, including the 4.7 million individuals who remain furloughed.
 
“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,” Roberts added.

“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.”

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