When it comes to our finances, comparing prices and switching providers is often the key to getting a good deal.
But for now, mortgage borrowers could reduce their payments by hundreds of pounds a year by staying loyal to their current lender, new figures reveal.
Lender MPowered Mortgages has revealed the average rate on a two-year fixed mortgage when switching lenders, compared to staying put.
Best known bad guy? Some mortgage borrowers save hundreds of pounds each year by staying loyal to their current lender.
It showed that the average person who needed a mortgage to cover 60 per cent of the value of their home, who was remortgaging to a new lender with a two-year term, would currently get a rate of 5.71 per cent.
But those who remortgage with their current lender – also known as a product transfer – would get an average rate of 5.31 per cent.
On a £200,000 mortgage 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 over a year.
However, not all rates will be cheaper, so borrowers are advised to check what is on offer in the market – for example by using a mortgage broker – rather than simply accepting the rate offered by their lender. current.
Next year, according to UK Finance, around 1.6 million fixed-rate mortgage deals will close.
Many of them will get rates of 2 percent or less and will look to limit the damage before their monthly costs skyrocket.
MPowered data showed a similar story for those looking to refinance with less equity in their homes.
The average person who needs a mortgage to cover 85 percent of the property’s value will typically get a rate of 5.95 percent when remortgaging with a new lender right now, he said, compared to 5.6 percent. cent when you stay with the same lender.
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| Mortgage loan to value | 2-year average fixed rate when switching | Fixed 2 year average when stuck |
|---|---|---|
| 60% TVL | 5.71% | 5.31% |
| 65% LTV | 5.7% | 5.72% |
| 70% TVL | 5.86% | 5.56% |
| 75% LTV | 5.83% | 5.56% |
| 80% TVL | 5.85% | 5.58% |
| 85% TVL | 5.95% | 5.60% |
| 90% TVL | 6.48% | 6.44% |
| 95% TVL | 6.49% | 6.49% |
| Source: 27Tec & Mpowered Mortgages |
Product transfer rates can sometimes be fixed several months before the end of the existing mortgage, so borrowers are advised to check in advance what their current lender is offering.
They can then consult a mortgage broker to compare this with the best offers on the market.
David Hollingworth, associate director at brokerage L&C Mortgages, says: ‘There may be high-priced products on offer to existing borrowers, which could be lower than those the lender offers to new customers.
‘Lenders will be keenly aware that it may be more difficult to attract new borrowers in today’s competitive market, and are keen to retain their existing customers.
“That can have benefits for borrowers, as it could mean their lender will have a good deal for them when the deal comes to an end.”
More borrowers stay with current lender
Unsurprisingly, there is a growing preference among borrowers to stay with their current lender rather than remortgage with a new one, but competitive rates aren’t the only reason.
According to UK Finance, 84 per cent of those who remortgaged stayed with their current lender rather than moving elsewhere between April and June this year.
MPowered says some borrowers are willing to stay put to avoid the additional affordability checks and potential additional costs associated with remortgaging.
The benefit of product transfers is that borrowers do not have to go through the same checks and balances that they would have to go through if they switched to a new lender.
Product transfers tend to require less paperwork, no new affordability assessment, and no property revaluation.
There are generally no additional product fees or attorney costs.
To be eligible for a product transfer, customers must be up to date with their monthly payments, approaching the end of their fixed rate term and not looking to borrow more.
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 not to blindly trust the rate offered by their current lender.
And he adds: ‘Although it may be the best option, it is tremendously competitive and lenders periodically cut fixed rates.
‘It is therefore very important that borrowers do not simply accept the interest rate offered by their lender.
‘An advisor will be able to compare prices across the market and see what other lenders are offering, as well as consider the options from existing lenders, comparing them against each other.
‘Some borrowers may not even know that a broker will be able to access those agreements and execute them if it is the right thing to do.
“Advisors like us don’t even charge fees, so using a broker means they can be sure they’ve chosen the best rate for them from all the options at no cost.”
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