Don’t Remortgage with your current mortgage lender. always shop around
Don’t take the easy way out by clicking a few links and remortgaging with your current mortgage lender – you would be costing yourself tens of thousands of pounds. Always shop around says David Lawrenson of LettingFocus.com.
Don’t Remortgage with your current mortgage lender. Always shop around
Six weeks ago, I was advising a client couple on buy to let and landlord issues as part of my one to one consultancy work. They had an existing portfolio and wanted to expand it a bit, so they were coming to me for advice.
In the course of the conversation, they mentioned that two of their two-year fixed rate buy to let mortgage deals with The Mortgage Works were coming to an end and they were just about to remortgage with them onto two five-year fixed rate deals.
They had been customers of Nationwide for many years – holding both savings and children’s accounts. (The Mortgage Works is the buy to let lending arm of Nationwide).
I asked them what rate they would be moving onto and started doing a bit of digging around with my broker, Dougie.
The total of their two remortgages with The Mortgage Works is £521,000. Both mortgages are under 40% loan to value (LTV) and all payments have been made on time and up to date with no arrears.
They had received a letter from The Mortgage Works telling them that their fixed term on the first of these mortgages were coming to an end and inviting them to remortgage by switching to a new deal.
The rate on the switch, based on their low LTV and paying a fee of £1995, was 2.64% for a five year fix.
However, I quickly found out via an online search that new non-customers coming to The Mortgage Works “from outside” with the same LTV and paying the same fee can remortgage for a five year fixed term at a far lower rate of just 1.69% – a full 0.95% less.
In total this would mean that over the five year term for the two mortgages, a new customer will pay a whopping £24,747.95 less (or 56%) than these “loyal customers” for the same remortgage deal.
Don’t Remortgage with your current mortgage lender
For the new customer, The Mortgage Works would have to do a load of work. They would have to receive and process a detailed application form, arrange a valuation for the property, do all the credit checks and get involved with additional legal work. This all costs the lender lots of money and time, but so keen are they on the new customers, that this is all done at no extra charge to the lucky new folk.
For the existing “loyal customer” looking to make a couple of clicks and tick a new product, very few of these extra costs to the lender will apply. All the lender will probably need to do is check the current valuation of the property and that payments are up to date – and even this can likely be done by a computer.
So, you might think this looks like insanity from a business point of view? The Mortgage Works is paying out a load of costs to secure new business from new customers and at the same time treating existing customers like idiots by giving them a duff deal for the same product.
So, I asked Nationwide and The Mortgage Works about this. “Was there any way these lovely existing customers could have the same rate as new customers get?”
The answer was a polite but firm “No” and some guff about how they could instead get the “all time low rate” of 1% on their remortgage if they opted for a 1-year fix, which, by the way, comes with a 2% fee.
Mmm, I see: 1% plus 2%, makes 3% in my world. Does not sound like a great deal to me.
So, why do these lenders do it? Why treat existing customers so shabbily? Why make them pay an interest rate that is 56% more than a new customer would enjoy?
Well, they know that most of their “loyal customers” are lazy and time poor, and most are likely to naively trust their lender is looking after their “best interests”. So they take the option of clicking a few links and switching smoothly onto a new product.
All too easy.
I have no idea what proportion of The Mortgage Works’s loyal customers take this easy way out. Probably most do. But by doing so, they have cost themselves hugely.
I’m pleased to say that for a day spent collating a load of documents and filling in application forms, my broker is in the process of moving them onto much better five year fixed mortgage rates with other lenders – rates similar to that The Mortgage Works offers to new customers, but refuses to offer to existing customers!
Moving has not cost them a penny as the new lender covers the cost of the valuation and legal fees. And the lender pay the broker a “procuration fee” .
It will take a month until the process of uplifting their old The Mortgage Works mortgage is complete but will be done well before they end up on the dreaded standard variable rate (the default option at the end of any fixed term). But it will be well worth it in the end.
Ripping off lazy, loyal customers is of course rife in financial services, just as it is in energy supply and telecoms. The new customers always get the best deals.
I know this well – having worked for Direct Line, Churchill and Lloyds Bank in my earlier days.
The Mortgage Works are not the only one playing this trick, though they must be among the most extreme in their abuse of the laziness of “loyal mortgage customers” in order to rip them off royally. (If you know better please comment or send us an email as I know many journalists are interested in stories like these).
I have just found out that Barclays’ “exclusive” buy to let remortgage rates for Premier customers like me are not as good as those for new customers. Not as extreme as in the case of The Mortgage Works, but still a discrepancy all the same.
So, don’t be a mug – shop around. You could easily save tens of thousands of pounds.
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We advise a range of organisations too to help them develop and improve their services and products for private landlords. David Lawrenson, founder of LettingFocus, also writes for property portals, speaks at property events and is regularly quoted by the media.
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