Today, Money Mail names and shames the building societies and banks which hit mortgage borrowers with the biggest loyalty penalties.
In the worst case, Leeds Building Society is charging long-standing mortgage customers a whopping £4,020 a year more than new customers who sign up for its cheapest two-year fix.
Yorkshire Building Society’s brand Accord is close behind, charging an extra £3,156.
Even in the best example, NatWest charges customers an extra £1,788 a year.
Leeds Building Society is charging long-standing mortgage customers a whopping £4,020 a year more than new customers who sign up for its cheapest two-year fix
Experts say banks are treating customers like cash cows, luring them in with ever-cheaper new deals — and then whacking them with huge rises when these expire.
Lenders have slashed the cost of new fixed-rate deals in recent years to get the upper hand in a fierce price war with rivals.
But even though Bank of England base rate has plummeted to record lows, lenders’ standard variable rates, which borrowers pay after their fixed deals expire, have barely changed.
Last month, Money Mail revealed that the gulf between the banks’ best fixed deals and their standard variable rates had quadrupled in six years.
The average two-year fix is 2.53 per cent, down from 4.61 per cent six years ago, according to data analyst Moneyfacts, while the average five-year deal is 2.94 per cent, down from 4.85 per cent.
Yet over the same time, the average standard variable rate has fallen by just 0.11 percentage points to 4.72 per cent.
Banks and building societies typically offer home-buyers introductory fixed deals of two to five years.
After this, they are automatically rolled on to the lender’s standard variable rate, which is nearly always more expensive.
Experts say banks are treating customers like cash cows, luring them in with ever-cheaper new deals — and then whacking them with huge rises when these expire
If borrowers are not confident about shopping around, or they forget to make a note of when their deal expires, they can end up paying hundreds of pounds more per month.
Research for Money Mail by online mortgage broker Trussle found that some lenders were squeezing such customers harder.
At Leeds Building Society, borrowers with a 20 per cent deposit can get a 1.54 per cent fixed deal for two years. On a typical £150,000 home loan, monthly repayments are £603.
Once this deal expires, customers move to its standard variable rate at 5.69 per cent and their monthly repayments will jump by £335 to £938. Over the course of a year, this means they would pay an extra £4,020.
Borrowers with a 35 per cent deposit who can get a 1.39 per cent two-year rate with Leeds BS would see an even bigger jump in their repayments: from £592 to £938 — an extra £4,152 a year.
Yorkshire Building Society’s Accord, whose deals can be accessed only via a mortgage broker, has the next largest gap between what it charges loyal and new customers, according to Trussle.
It has a 1.69 per cent two-year rate if you have a 20 per cent deposit. On a £150,000 loan, monthly repayments are £613.
Meanwhile, its standard variable rate is 4.99 per cent. This works out at an extra £263 a month or £3,156 a year.
NatWest has the smallest gulf between what new and loyal customers pay. It has a 2.18 per cent two-year fix for borrowers with a 20 per cent deposit.
Monthly repayments work out at £642. When that deal expires, they end up on a standard variable rate of 3.99 per cent, where monthly repayments increase to £791. Over a 12-month period, that’s an extra £1,788.
Britain’s biggest lender, Halifax, has a 1.77 per cent two-year fix for those with a 20 per cent deposit. On the standard variable rate of 3.99 per cent, home-buyers pay an extra £2,052 a year.
There are around two million UK homeowners sitting on their lender’s standard variable deal, according to the Financial Conduct Authority
Experts say these lenders have no excuse for failing to reduce standard variable rates in recent years.
Dominik Lipnicki, of mortgage broker Your Mortgage Decisions, says: ‘What other reason do lenders have for keeping standard variable rates high than to boost their profits? What’s worse is that these customers will also be the first to be hit by increases should interest rates rise.’
Trussle chief executive Ishaan Malhi says: ‘Lenders need to get better at prompting customers when a deal is up and it’s time to switch.’
There are around two million UK homeowners sitting on their lender’s standard variable deal, according to the Financial Conduct Authority.
Some of these are the so-called ‘mortgage prisoners’ who can’t switch to a cheaper deal because they don’t meet strict new affordability rules which were introduced in the wake of the financial crisis.
Yesterday banks and building societies said they will write to thousands of ‘prisoners’ by the end of the year and outline cheaper deals that may be available providing they meet the agreed criteria.
However, as many as 150,000 won’t get help because their lender no longer offers new mortgages.
Banks say they write to customers up to three months before their initial deal expires to explain alternative options to the standard rate.
A spokesman for banking trade body UK Finance says: ‘Lenders will proactively offer new mortgage products to homeowners who are coming to the end of their mortgage deal and, with rates still at record lows, this is proving to be a popular choice for many borrowers.
‘Although standard variable rate borrowers may pay higher rates, they tend to have smaller mortgages and, dependent on their situation, this product can offer them flexibility if they wish to overpay or pay off their loan early.’
v.bischoff@dailymail.co.uk