Switching mortgage lender may NOT save you money as banks offer top rates to keep customers
When it comes to our finances, shopping around and switching providers is often the key to getting a good deal.
But right now mortgage holders could cut their payments by hundreds of pounds a year by staying loyal to their current lender, new figures show.
Lender MPowered Mortgages has revealed the average rate for a two-year fixed mortgage when switching lenders, compared to staying put.
Better the devil you know? Some mortgage lenders save themselves hundreds of dollars every year by staying loyal to their current lender
It found that the average person needing a mortgage to cover 60 percent of the value of their home, who would take out a new mortgage with a new lender with a two-year term, would currently get an interest rate of 5.71 percent .
But those who would take out a new mortgage with their existing lender – known as a product transfer – would receive an average rate of 5.31 percent.
For a €200,000 mortgage paid off over 25 years, that would be the difference between €1,253 per month and €1,206 per month: a saving of €47 per month, or €564 per year.
However, not all rates will be cheaper, so borrowers are still advised to check what is on offer in the market (for example by using a mortgage broker) rather than simply accepting the interest rate offered by their current lender.
About 1.6 million fixed-rate mortgage deals will end next year, according to UK Finance.
Many of them will get rid of rates of 2 percent or less and will try to limit the damage before their monthly costs skyrocket.
MPowered’s data showed a similar story for people looking to refinance with less equity in their home.
The average person who needs a mortgage to cover 85 percent of the property value will currently typically get an interest rate of 5.95 percent if they take out a new mortgage with a new lender, up from 5.6 percent if he stays with the same lender.
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| Mortgage loan by value | Avg. 2 year fixed rate when switching | Avg. 2 years fixed when sticking |
|---|---|---|
| 60% LTV | 5.71% | 5.31% |
| 65% LTV | 5.7% | 5.72% |
| 70% LTV | 5.86% | 5.56% |
| 75% LTV | 5.83% | 5.56% |
| 80% LTV | 5.85% | 5.58% |
| 85% LTV | 5.95% | 5.60% |
| 90% LTV | 6.48% | 6.44% |
| 95% LTV | 6.49% | 6.49% |
| Source: 27Tec & Mpowered Mortgages |
Product transfer rates can sometimes be fixed several months before the end of the existing mortgage. Borrowers are therefore advised to check in advance what their existing lender has to offer them.
They can then consult a mortgage broker to see how this compares to the best deals across the market.
David Hollingworth, associate director at broker L&C Mortgages, said: ‘Discounted products can be offered to existing borrowers, which may be lower than what the lender is offering to new customers.
‘Lenders will be acutely aware that it can be more difficult to attract new borrowers in today’s competitive market, and they will be keen to retain their existing customers.
‘That could have benefits for borrowers as it could mean their lender will have a good offer for them when their deal expires.’
More and more borrowers are staying with their current lender
Unsurprisingly, there is a growing preference among borrowers to stick with their existing lender rather than remortgaging with a new one, but competitive rates aren’t the only reason.
According to UK Finance, 84 percent of remortgages stayed with their current lender rather than moving elsewhere between April and June this year.
MPowered says some borrowers are keen to stay put so they can avoid the extra affordability checks and potential additional costs associated with refinancing.
The advantage of product transfers is that borrowers do not have to go through the same checks and balances as if they were switching to a new lender.
Product transfers typically require less paperwork, no new affordability assessment and no revaluation of the property.
There are usually no additional product costs and no attorney fees.
To be eligible for product transfer, customers must be current on their monthly repayments, approaching the end of their fixed-rate period and no longer wish to borrow.
Borrowers must also have a minimum remaining mortgage term of two years and an outstanding loan of at least £10,000.
However, David Hollingworth of L&C Mortgages warns borrowers against blindly trusting the interest rate their current lender is offering them.
He adds: ‘While that may be the best option, competition is fierce and lenders regularly reduce fixed interest rates.
‘It is therefore very important that borrowers do not simply accept the rate from their lender.
‘An adviser can explore the whole market and see what other lenders are offering, as well as consider existing lender options and compare them against each other.
“Some borrowers may not even be aware that a broker can access and close those deals if that’s the right thing to do.
‘Advisors like us don’t even charge a fee, so using an agent means they can be confident they have chosen the best rate for them from all the options, free of charge.’
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