When your fixed-rate deal is coming to an end, sticking with the bank you already use feels like the obvious route.
Sorting out a mortgage is stressful enough without starting from scratch, so it’s no surprise one in five people simply pick the brand already sitting on their banking app. The snag is that banks aren’t famous for rewarding loyalty, and assuming you will get a cheaper deal just because you have been a good customer can cost you a small fortune. Knowing what lenders actually put on the table, whether existing-customer perks are worth having, and the convenience of staying put helps you decide whether to sign on the dotted line or look elsewhere.
Does sticking with your lender save money?
The short answer is that it rarely does. Researchers asked 21 of the UK’s biggest mortgage lenders whether they give existing customers cheaper deals, and only 15 replied. Just one of them, West Brom Building Society, said clearly that it offers lower rates to people who already borrow from it.
That doesn’t mean you should walk away automatically. A few lenders do treat existing customers well, and staying put has some practical benefits. The point is that you shouldn’t assume your own lender will offer you the best deal, and the only way to find out is to check.
There are lenders that do reward loyalty.
HSBC and First Direct both told researchers that they run a separate range of mortgages for existing customers. When the rates were compared with their standard remortgage deals, existing borrowers did come out with a better offer. Nationwide and TSB said that customers looking for a new deal will be offered rates that match or beat the ones on offer to new borrowers.
TSB added that existing customers avoid legal and valuation costs when they switch to a new rate. Santander said its rates may differ between new and existing customers, but gave no firm promise. Each of these is a good reason to ask your own lender what it can do before you decide.
There are also lenders that say no.
Eight lenders confirmed that they don’t offer discounts to existing customers. They are Bank of Ireland UK, Barclays, Coventry Building Society, Lloyds, Halifax, NatWest, RBS and Yorkshire Building Society. If your mortgage is with one of these, you won’t get a loyalty bonus just for staying.
That makes it even more important to look around. Your lender may still have a competitive rate, but you can’t count on it. Comparing its offer with the wider market is the only way to be sure that you’re not paying more than you need to.
How rare special deals really are
The researchers also looked at figures for the whole market on 16 October. Of 5,921 remortgage products on sale, only 150 were available exclusively to existing borrowers. That’s around 3% of the total.
So the vast majority of the best deals are open to anyone, whether or not you already have a mortgage with the lender. Near the end of your fixed term, it’s sensible to ask what your lender can offer and then to compare that with the best rates across the market.
Can your bank account unlock a cheaper rate?
Only three of the lenders contacted said that customers with another product, such as a current account, can get preferential mortgage rates. Even then, the bar can be high. To get discounted rates through a premier banking account at Barclays, you need an annual income of at least £75,000, or £100,000 in savings or investments. HSBC asks for an income of £100,000 or the same amount in savings or investments.
The Club Lloyds current account is the only standard account that offers discounted mortgage rates, but only to first-time buyers and people moving home. It costs £5 a month, which is refunded if you pay in at least £2,000 a month. Lloyds also offers lower rates through its premier banking service, which needs £5,000 paid in each month or £100,000 held in savings or investments.
Other perks and an easier process
A lower rate isn’t the only way to reward loyalty. Some lenders give cashback or share profits with customers. Nationwide paid qualifying members £100 earlier this year through a scheme called Fairer Share. Yorkshire Building Society gives £250 cashback to savers who take out a qualifying mortgage, and Skipton Building Society offers £250 to Lifetime Isa customers who buy their first home with one of its mortgages.
Staying with the same lender can also make life simpler. When you switch to a new deal with your current lender, known as a product transfer, you usually face fewer credit and affordability checks than if you move elsewhere. If your income has dropped or your circumstances have changed, that could make it easier to get a new deal.
Why people choose their lender
The survey, which asked more than 6,500 mortgage holders, found that the most common reason for picking a lender was a recommendation from a mortgage broker, at 29%. Having an existing relationship with the lender came second, at 21%, and the lender’s reputation followed at 19%.
Price still matters a lot. The interest rate was the reason for 16% of people and the total cost of the deal for another 15%. Adding in those who chose a deal because it had no upfront fee, 42% of borrowers made their choice based mainly on cost. Brokers can search a large part of the market for you, although some lenders, such as First Direct, only deal directly with customers.
What to do when your fixed deal ends
Start looking around four to six months before your current rate runs out, since many lenders let you lock in a new deal well ahead of time. Ask your own lender for its best rate for existing customers and find out whether there are any fees. Then compare it with the best deals on the market, either on your own or with the help of a broker.
Look at the total cost over the length of the deal, not just the headline rate, because fees can wipe out a small saving. Think about whether you value a simpler process, any cashback or the chance to avoid legal costs. If the numbers favour your current lender, stay and enjoy the ease. If they don’t, switching could save you a sizeable sum each month.
