Getting a better deal

We Seem To Be Coy About Switching Our Mortgage To A. Different Lender|But A. Few Telephone Calls Could Save Thousands|Says Sally Hamilton

5 April 2012

Most of us are happy to make a blizzard of telephone calls or hits on the internet to save £50 on an air fare, but when it comes to the mortgage - probably our most expensive purchase - we seem to be quite happy to remain loyal to our lender, and to pay thousands of pounds more than we should, just because we won't find the time to change to a cheaper rate.

More often than not, it is a lender's faithful followers who subsidise the cheap loans that are used to entice new borrowers: a subsidy that amounts to an estimated £2 billion a year.

According to moneysupermarket.com, an online service that compares mortgage deals, a borrower with an average new home loan of £93,000 could save themselves £7,000 over five years simply by switching from a typical standard variable rate (SVR) mortgage of 5.5 per cent APR to one of the most competitive deals on the market.

Almost half of the UK's 11.5 million mortgage borrowers are charged their lender's standard variable rate, according to Kevin Duffy, managing director of mortgage advisers Hampton International Mortgages.

Duffy says: "This is getting on for double the best discounted deals available. Borrowers are letting themselves down badly if they don't keep looking out for better offers. The difference could be, at the very least, hundreds of pounds a year."

A proportion of variable rate borrowers are trapped in their rate because this is the payback for an earlier low-cost discount or fixed-rate deal from their lender. But an estimated four million home-owners are paying the standard variable rate unnecessarily.

Before switching, it is worth asking whether your lender will match a rival's deal. While some lenders respond positively, others dig in their heels, or make only half-hearted attempts to keep their customers.

Halifax has three deals available to would-be defectors, but they are feeble compared with best-buy deals, according to Ray Boulger, senior technical manager at mortgage advisers Charcol.

He comments: "Abbey says that it always negotiates on an individual basis, but there are no guarantees of success. At least the Halifax offerings are transparent."

Attempts at remaining loyal to Halifax certainly did not pay for Liz Froude from Twickenham, west London.

Computer company account manager Liz, 29, wanted to stay with Halifax when her attractive 3.99 per cent APR two-year fixed-rate deal ended recently. But with Liz now no longer a new customer, the lender failed to respond with an adequate replacement.

Liz says: "I wanted to stay with Halifax but all it could offer me was a two-year fixed rate of 4.69 per cent. My mortgage broker, Square Mile Mortgage Finance, found me several cheaper deals but Halifax was adamant it couldn't offer me anything better. In the end, it lost my business when I opted for the Staffordshire Building Society's two-year fix at 3.69 per cent: a whole one per cent cheaper."

Borrowers are also warned to watch out for the pitfalls of "loyalty" mortgage rates, which are offered by certain lenders to their long-standing customers. Boulger says: "The 0.75 per cent discount on the variable rate with National Counties seems appealing, for example, but a closer look reveals that a borrower is tied in for three years or faces a redemption penalty."

Other loyalty deals are often at a rate that is higher than mainstream standard variable rates. Boulger says: "While you might get 0.5 per cent off the SVR, you'll find that it is still higher than Nationwide's SVR of 4.54 per cent APR, and that can also be beaten elsewhere."

There are occasions when loyalty pays, however. Boulger explains: "If you have recently become self-employed or received a County Court judgment, you may find that remortgaging with your existing lender is the only way to get a cheaper deal. The company won't ask any questions, so long as your repayments are up-to-date and you are not increasing the loan. It probably wouldn't be worth even trying to switch elsewhere in these circumstances.'

MyMortgageAlert.com is a new service that takes into account borrowers' redemption penalties when tipping them off about mortgage deals that meet their loan savings' aspirations. The annual fee is £30 until the end of the year, when it rises to £48 (www.mymortgagealert.com or phone 08702 418232).

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