The penny has finally dropped. Lenders are beginning to treat existing customers as well as new ones. But how will you know if you’re getting the best deal? Jeni Browne explains what you need to know…
I have been in this game for a long, long time. And one thing (of many) which has always frustrated the bejesus out of me, is lenders utter fixation on recruiting new borrowers, whilst merrily watching existing ones walk out the door. By this, I refer to the very good rates that are offered to you as new borrowers to hook you in, versus the not so good ones you get offered once the good ones have ended. If you are offered another one at all that is. In some cases, it’s the lender’s standard variable rate (which tends to sit around 4.5%) or the proverbial highway.
If we consider why this may be for a moment, perhaps the lenders could be, at least in part, forgiven…
Ultimately, lenders have always targeted themselves on getting in new borrowers. To achieve this, lenders have offered lovely low rates, which quite often don’t put them in any profit – in some cases the low deals have even come at a cost to the lender. However, they know that once your deal ends, inertia dictates that a high proportion of borrowers will revert onto their standard variable rate and stay there or take the not so great new rate offered – this is where they make their real money. The trade-off is that the rest of the borrowers will shop around and move their borrowing to a different lender.
Some lenders sell on the mortgages they arrange, which is often the reason borrowers are not offered a new rate at the end of the term. Put quite simply, the lender has already sold the debt on to an investment fund which means they no longer see you as their borrower per se. Instead, they are focussed on setting up new mortgages to sell on.
You can see how, that for so many years lenders have been quite happy with the status quo. And let’s be honest. Brokers have quite liked it too, because lots of remortgaging is good for business!
But then, something happened. I am guessing that someone got out their calculator and figured out the cost of recruiting a new borrower (marketing, sales team, administration) coupled with the low profit – if any during the initial period, meant losing a borrower after two years wasn’t such a great business move. Instead, trying hold onto more borrowers would make more sense. And hey presto! the product transfer market put on its disco pants and really got boogying.
Also known as product switching, now almost every lender will offer you a deal to stick around. And for many lenders, the gap between new borrower deals and existing borrower deals has closed dramatically. Ultimately, this is really positive news for anyone with a mortgage! Of course, it is still worth shopping around before you make any decision. Sticking won’t always be your best option.
Now you may wonder why I am writing about this? As a broker – won’t I be losing out? Not really, no. Just because your current lender is offering product transfer facilities, doesn’t mean this is the best route for you. Before you agree to the new rate give us a call and let us know what you’ve been offered. We’ll scan the market, do some calculations that take fees, rates and ERCs into account, and let you know if switching really is the best option for you. Remember we do not charge for this sort of advice, so what’s the harm in checking? We may be able to save you money. To state the bleeping obvious, that’s one of the reasons that brokers exist!
Another reason for our existence, is that we can handle the product transfers for you – we’re good at it, and it will free up your time to do something more interesting (and we’ve all got more interesting stuff to do right?). It is also worth noting that some lenders won’t deal directly with customers and therefore to carry out a product switch you will have to go via a broker.
If you’re one of our customers, we’ll start the conversation. We’ll let you know in advance, when your ERCs are about to expire and work with you to decide your next steps. Be it product transfer or a remortgage, we’ll be on your side.
So if you’ve got a rate that’s about to expire, do get in touch and let us do the maths. Whatever you do… please don’t sit on your lender’s standard variable rate! Call now 0345 345 6788.