According to new research from Nationwide Building Society, 75 per cent of UK inhabitants do not understand how significant a one per cent difference in mortgage rates can be. Its research revealed that on a five year fixed-rate deal, a one per cent rate difference could represent more than £4,000 in value.
It discovered that when presented with two five-year mortgage deals to choose between, the largest group of respondents (28 per cent) believed the difference on a £120,000 mortgage with an interest rate at 5.6 per cent would be between £500 and £2,000 compared with a 6.6 per cent rate. Meanwhile, 23 per cent were completely clueless. Just 25 per cent identified that the difference could be around the £4,000 mark.
Divisional director for mortgages, Matthew Carter, said: "As our research shows, most people don't understand the impact that just a 1 per cent difference can make, meaning they could be wasting thousands of pounds."
Nationwide found that men were more clued-up than women, with 33 per cent choosing the right answer compared with just 18 per cent of women. Furthermore, a higher proportion of people in the 55-64 age bracket guessed correctly (31 per cent), almost double compared with 16 per cent in the 18-24 group.
In terms of regions, the South-East, the Midlands and Scotland appeared the most knowledgeable on the subject, with 28 per cent in these areas picking the correct answer compared with just 19 per cent in Wales and the South West.
The company indicates that if shopping around to find the best mortgage deal saves people £4,000, that extra £800 a year could be used to cover a large proportion of council tax or utility bills for the five-year period. Alternatively, it could offer an extra £65 a month for groceries or give households the option of making mortgage overpayments of £800 per year.
"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," said Mr Carter.
"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 five-year deal for a couple of hours of work is a pretty good return," he added.
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