Mortgage rip-off that costs us ?7.5billion

Homeowners and shopping junkies are squandering billions of pounds every year by not switching mortgages or checking the interest rates on their credit cards.

Two new surveys reveal that when it comes to financial products many British consumers simply cannot be bothered to read the small print on their contracts or shop around for the best deals.

A survey by loan advice firm Clear Cut Mortgages shows that apathetic Britons are losing out on potential savings of £7.5 billion a year by failing to switch to more competitive home loans.

A glance at the most competitive offers currently on the market shows that some banks and buildings societies are now offering mortgages with interest rates fixed at little more than 3 per cent for the next two years.

With the average mortgage rate now as low as 5.5 per cent, compared with almost three times this in 1990, homeowners are paying a heavy price for not switching. A typical UK homeowner with an outstanding mortgage of £53,220 could save £549 a year by switching from an average rate to the best on the market.

And people with larger loans of £100,000 or £150,000 could make annual savings of £1,117 and £1,675 respectively.

Despite the huge savings, the research found that only 62 per cent of homeowners had remortgaged to obtain a better deal during the past two years. Of those who had not switched, just over half said they were aware they could save money if they moved to a more competitive deal but had not done so.

Just under a third said they did not need to make the savings, while eight per cent said they had not got round to it and six per cent thought it was too much trouble.

Robin Tinsley, chief executive of Clear Cut Mortgages, said: 'Homeowners have never been in a better position to get the best deal on their borrowings. Interest rates are at a low and market competition is fierce.

'Considering the savings that are available, we would urge people to review their mortgages to ensure that they have got the best deal,' Tinsley added.

Another new survey has found that nearly two-thirds of people have no idea what interest rate they are being charged on their credit cards.

The financial services group More Than says 62 per cent of those surveyed do not know what the standard annual percentage rate (APR) is on purchases made using their credit card.

Only a third said they chose their card provider because it offered a low interest rate, while almost four out of five admitted they had never changed their credit card and were probably on a deal that was out of date.

Some credit cards now offer APRs as low as 6.5 per cent a year while others can charge interest rates as high as 29 per cent.

The House of Commons Treasury Select Committee has been severely critical about credit card providers, accusing them of a lack of transparency which makes it harder for consumers to shop around.

The concerns prompted the financial services body, APACS, which represents the banks, to announce plans to introduce a new information box on all credit card adverts and application forms by March. The box will set out what interest rates consumers will pay on balances, what the interest-free period is, what minimum repayments are and any other fees or charges.

Graham Hollebon, head of credit cards at More Than, said: 'With around 80 per cent of the population potentially on uncompetitive deals and over 17 million people unaware of the rates they are being charged, the provision of clearer information is vital in encouraging people to switch to better deals.

'There is a vast array of competitive deals available on the market and there is no need for people to be with providers who charge unnecessarily high APRs and offer no added benefits,' he added.

The More Than survey also showed that consumers are demanding more from their credit cards. Almost one in four now carry credit cards that offer reward schemes, such as cash back on purchases.