When it comes to our finances, shopping around and switching provider is often the key to getting a good deal.
But at the moment, mortgage borrowers could cut their payments by hundreds of pounds per year by staying loyal to their current lender, new figures have revealed.
Lender MPowered Mortgages has revealed the average rate on a two-year fixed mortgage when switching lenders, compared to staying put.
Better the devil you know? Some mortgage borrowers are saving themselves hundreds of pounds each year by staying loyal to their current lender
It showed the average person needing a mortgage to cover 60 per cent of the value of their home, who was remortgaging to a new lender on a two-year fix, would currently secure a rate of 5.71 per cent.
But those remortgaging with their existing lender – also known as a product transfer – would get an average rate of 5.31 per cent.
On a £200,000 mortgage being repaid over 25 years, that would be the difference between paying £1,253 a month and £1,206 a month: a saving of £47 each month, or £564 in a year.
Not all rates will be cheaper, though, so borrowers are still advised to check what’s on offer across the market – for example by using a mortgage broker – rather than simply accepting the rate offered to them by their current lender.
Next year, around 1.6 million fixed rate mortgage deals are due to end, according to UK Finance.
Many of these will be coming off rates of 2 per cent or less and will be looking to limit the damage before their monthly costs skyrocket.
MPowered’s data showed a similar story for those looking to refinance with less equity in their homes.
The average person needing a mortgage to cover 85 per cent of the property’s value will typically secure a rate of 5.95 per cent when remortgaging to a new lender at the moment, it said, compared to 5.6 per cent when sticking with the same lender.
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| Mortgage loan-to-value | Avg 2 yr fixed rate when switching | Avg 2 year 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 locked in several months ahead of the existing mortgage ending, so borrowers are advised to check what their existing lender is offering them in advance.
They can then consult a mortgage broker to see how this compares to the best deals from across the market.
David Hollingworth, associate director at broker L&C Mortgages, says: ‘There can be sharply-priced products on offer to existing borrowers, which could be lower than the lender is offering new customers.
‘Lenders will be acutely aware that it may be harder to attract new borrowers in the current, competitive market, and they are keen to keep hold of their existing customers.
‘That can have benefits for borrowers as could mean that their lender will have a good offer for them as their deal comes to an end.’
More borrowers stick with current lender
Unsurprisingly, there is a growing preference among borrowers to remain with their existing lender rather than remortgaging to a new one – but competitive rates are not the only reason.
According to UK Finance, 84 per cent of those remortgaging remained with their current lender instead of moving elsewhere between April and June this year.
MPowered says that some borrowers are keen to stay put so they can avoid the extra affordability checks and potential added costs associated with remortgaging.
The benefit of product transfers is that borrowers don’t have to go through all the same checks and balances they would if switching to a new lender.
Product transfers tend to require less paperwork, no new affordability assessment, and no re-valuation of the property.
There are typically no additional product fees, and no solicitor costs.
To be eligible for a product transfer, customers need to be up-to-date with their monthly repayments, approaching the end of their fixed-rate term and not looking to borrow any more.
Borrowers also need to 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 cautions borrowers from blindly relying on the rate that their current lender offers them.
He adds: ‘Whilst that may be the best option it is fiercely competitive and lenders are regularly cutting fixed rates.
‘It’s therefore really important that borrowers don’t simply accept the rate on offer from their lender.
‘An adviser will be able to shop around the whole market and see what is on offer from other lenders as well as consider the existing lender options, holding them up against each other.
‘Some borrowers may not even be aware that a broker will be able to access those deals and put them in place if it’s the right thing to go for.
‘Advisers like ourselves don’t even charge a fee, so using a broker means that they can be confident they have picked out the best rate for them from across all the options without any cost.’
