Poor Understanding of Monetary Value of 1%
Personal_Finance / Debt & Loans Nov 28, 2007 - 04:00 AMBy: Nationwide
Research from Nationwide Building Society reveals that 75% of people in the UK don't understand the monetary value a 1% difference in mortgage rates can make. A 1% difference in rates on a five year fixed rate mortgage deal could be worth over £4,000*. When given details of two five year mortgage deals to compare, the largest group of respondents (28%) said they thought the difference on a £120,000 mortgage with an interest rate at 5.6% compared to a rate of 6.6% would be between £500 and £2000. Another 23% said they had no idea at all. Only 25% of people correctly identified that the difference could be £4,000.
The research also showed that:
- Men are more mortgage savvy than women. 33% of men answered correctly compared to less than a fifth of women (18%);
- Experience counts! 31% of those aged 55-64 guessed correctly the true value compared to just 16% of those aged 18-24;
- The South-East, Midlands and Scotland had the highest regional score. 28% percent of people in these regions knew the difference compared to their counterparts in Wales and the South West where only one in five people (19%) were right.
If by shopping around, a consumer finds a mortgage deals that saved £4,000, this could cover the costs of:
- The majority of a household's annual council tax or utility bills: an extra £800 a year would cover a significant proportion of an average £1,100 a year council tax bill or £1,200 a year utility bills;
- £65 extra a month towards grocery shopping;
- £800 a year towards mortgage overpayments;
- An extra holiday a year.
Matthew Carter, Nationwide Building Society's divisional director for mortgages, said: "People's lives are busier than ever in the run up to the festive season and, as a result, they may be less inclined to shop around for the best deal. The temptation may be to take a slightly higher rate as an easier, less hassle option. But, as our research shows, most people don't understand the impact that just a 1% difference can make, meaning they could be wasting thousands of pounds.
"We therefore urge borrowers to make time to shop around and compare the total costs over the life of a deal before making a final decision. After all, a £4,000 plus saving on a 5 year deal for a couple of hours of work is a pretty good return!"
Example of cost savings on 5 year fixed rate mortgages:
Remortgage, switcher and additional borrowing:
| Lender | Rate | Reservation fee | Monthly payment | Difference in rate to Nationwide | Saving with Nationwide over 5 year deal period |
|---|---|---|---|---|---|
| Nationwide | 5.63% | £499 | £754 | - | - |
| NatWest | 6.54% | £699 | £806 | + 0.91% | £3,151 |
| Halifax | 6.89% | £499 | £827 | + 1.26% | £4,393 |
| Northern Rock | 7.29% | £495 | £851 | + 1.66% | £5,832 |
Rates correct as at 23.11.2007
Home mover:
| Lender | Rate | Reservation fee | Monthly payment | Difference in rate to Nationwide | Saving with Nationwide over 5 year deal period |
|---|---|---|---|---|---|
| Nationwide | 5.63% | £499 | £737 | - | - |
| HSBC | 6.29% | £499 | £785 | + 0.66% | £2,864 |
| Halifax | 6.69% | £499 | £814 | + 1.06% | £4,642 |
| Northern Rock | 7.29% | £495 | £860 | + 1.66% | £7,363 |
Rates correct as at 23.11.2007
Contact information:
Zoe Stevens, 01793 655423, zoe.stevens@nationwide.co.uk
Natalie Tate, 01793 655354, natalie.tate@nationwide.co.uk
Notes:
*Based on £120,000 repayment mortgage over 25 year term.
Cost of five year deal at 5.6% = £44,645. Cost of deal at 6.6% = £49,066. £49,066-£44,645 = £4,421
Remortgage competitor comparison table - assumptions
Rates correct as at 23.11.07. Savings are based on an average loan size of £102,282, an LTV of 75%, and a term of 18 years. Any difference in reservation fee has not been included in the savings above.
Home mover competitor comparison table - assumptions
Rates correct as at 23.11.07. Savings are based on an average loan size of £118,573, an LTV of 75%, and a term of 25 years. Any difference in reservation fee has not been included in the savings above.
Full survey results:
Q. Based on a repayment mortgage of £120,000, approximately how much do you think the difference in total repayment over 5 years would be for a mortgage with an interest rate of 5.6%, compared to a mortgage with an interest rate of 6.6%?
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|
Results by gender |
|
|---|---|---|---|
|
Total |
Male |
Female |
| £500 or less | 5% | 4% | 6% |
| £500 - £2,000 | 28% | 28% | 28% |
| £2,000 - £4,000 | 19% | 19% | 20% |
| More than £4,000 | 25% | 33% | 18% |
| Don’t know | 23% | 16% | 29% |
|
Regional results |
||||
|---|---|---|---|---|---|
|
South East |
Midlands |
North England |
Wales & South West |
Scotland |
| £500 or less | 6% | 4% | 6% | 4% | 6% |
| £500 - £2,000 | 28% | 27% | 30% | 28% | 25% |
| £2,000 - £4,000 | 20% | 20% | 21% | 15% | 16% |
| More than £4,000 | 28% | 28% | 22% | 19% | 28% |
| Don’t know | 19% | 21% | 21% | 33% | 26% |
|
Results by age |
|||||
|---|---|---|---|---|---|---|
| 18 - 24 |
25 - 34 |
35 - 44 |
45 - 54 |
55 - 64 |
65+ |
| £500 or less | 2% | 11% | 5% | 5% | 4% | 4% |
| £500 - £2,000 | 35% | 33% | 30% | 23% | 27% | 22% |
| £2,000 - £4,000 | 22% | 17% | 26% | 18% | 13% | 18% |
| More than £4,000 | 16% | 25% | 22% | 30% | 31% | 25% |
| Don’t know | 25% | 13% | 18% | 24% | 26% | 30% |
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