Homebuyers wanting to stay loyal to their existing mortgage provider when their fixed-term rate ends are finally being rewarded with better deals than those being offered to new customers.
It seems that banks and building societies have at last woken up to the benefits of retaining good customers and — in return for their loyalty — are offering existing customers the best interest rates or are slashing fees when they come to remortgage.
Often, these deals are not advertised but are offered ‘under the counter’ to borrowers whom lenders fear may switch away.
Banks and building societies have at last woken up to the benefits of retaining good customers and are offering existing customers the best interest rates or are slashing fees
Households are routinely warned about the so-called ‘loyalty penalty’ that sees them offered a worse deal than new customers on everything from house insurance and energy to broadband.
For years, this ‘loyalty penalty’ has applied to home loans, too. So as soon as your fixed-term deal had come to an end, lenders would move you on to the standard variable rate (SVR), which is almost always far more expensive and can add thousands of pounds to your mortgage costs each year.
Experts say that while customers are still moved on to the SVR if they do not switch to a new deal, banks and building societies are becoming far more proactive in tempting customers to stay with them.
It means that lenders are now far more likely to offer mortgage rates that match or even beat the best deals they offer to new customers, or that their usual arrangement fees are either slashed or waived altogether.
Newcastle Building Society, for example, is offering existing borrowers with a 20 per cent deposit a five-year deal at 2.39 per cent, according to mortgage broker John Charcol.
The best rate for new customers is 2.59 per cent. On a typical £150,000 mortgage, this means a saving of £15 a month — or £900 over five years.
Existing Coventry Building Society customers can get a two-year deal at 1.55 per cent, while new customers will pay 1.59 per cent — a £72 saving in two years.
Households are routinely warned about the so-called ‘loyalty penalty’ that sees them offered a worse deal than new customers on everything from house insurance and energy to broadband
In some cases, lenders may offer the same interest rates to all customers but reduce its arrangement fees for its existing customers.
Family Building Society’s top five-year fix is 3.19 per cent for new and existing customers who can make a 15 per cent downpayment — but loyal customers will be charged a fee of just £125 compared to a £1,499 charge if you are new.
Cambridge Building Society offers a five-year 2.54 per cent rate regardless of whether you are already with them or not — but as an existing customer you will pay a reduced fee of £400 instead of £999.
Metro Bank has ditched its remortgage fees altogether for existing customers.
Some home loan providers offer special discretionary rates which are not advertised.
Santander, for example, offers competitive rates to existing customers but does not publish a range. Instead, its staff negotiate deals on a case by case basis.
Last year, twice as many borrowers stuck with their existing mortgage provider as switched to a new one, according to banking industry body UK Finance.
Some 1.19 million borrowers opted for what is known as a product transfer deal, while 476,900 switched to new deals with a different lender.
And the trend is growing. In the last three months of 2018, 331,500 homeowners opted for a product transfer deal, compared to 291,900 in the previous quarter.
Existing Coventry Building Society customers can get a two-year deal at 1.55 per cent, while new customers will pay 1.59 per cent — a £72 saving in two years
Shaun Church, director at mortgage broker Private Finance, says: ‘There has been a seismic shift towards retaining mortgage clients, which is why many existing borrowers can now enjoy the same rate as a client who has just walked through the door.
‘Lenders have woken up to the logic that if you have a good customer who makes their payments regularly, then why wouldn’t you want to retain them, particularly if you’ve already spent money to market to them?
‘New clients can present an unknown risk, while also costing money to attract and set up from an admin perspective.’
But borrowers who need to remortgage are being urged not to stop shopping around. Just because they are being offered their lender’s best rate, it does not mean it’s the best on offer.
David Hollingworth, of brokers L&C Mortgages, says: ‘There is still a good chance that lenders in the open market will offer something more competitive, so any offer from the existing lender should always be held up against rates in the open market.’
For example, Virgin Money offers the same 1.72 per cent two-year rate with a £995 fee to new and existing customers with a 40 per cent deposit. But Lloyds offers 1.43 per cent with a £999 fee — saving £493 over two years with a typical mortgage.
Homebuyers should be aware that if they switch to a new lender, they will need to pass its affordability checks.
Product transfer deals may be particularly attractive if your circumstances have changed since you first took the mortgage, as you avoid having to prove again that you can afford the loan.
The process will be much quicker, too.
However, you will only be eligible for a product transfer deal if you do not need to make changes to the terms of your mortgage. If you need to borrow more, you will have to apply for a new deal.