The mortgage market: lenders and their existing clients

It is an odd anomaly in the mortgage market that banks and building societies have traditionally tried much harder to attract new customers than look after their existing ones.

We say ‘odd’ because in the world of finance, the process and cost of looking after existing customers – particularly those who have a good track record – makes it a much simpler transaction for the lender. Indeed, it makes fundamental business sense, in general, to look after regular or existing customers. 

To these large financial organisations concerned, it was always a leaky bucket; they were more interested in what went in the ‘top end’ instead of what came out at ‘the bottom’. However, thankfully they have seen sense.

What’s changing?

In recent years, lenders’ attitudes have, in the main, changed a little. And more particularly since the beginning of 2018, when the majority of mortgage lenders began paying brokers for recommending a borrower stayed with them, leading to relatively competitive product transfer rates.

So, what does this mean to you as an existing borrower?

When looking at refinancing, it’s important to consider what your existing lender will offer you. There are a number of reasons for this.

In most cases, the process for switching to a new product with an existing provider, involves no valuation on your property, no credit score, no income assessment and, crucially for many, no affordability assessment.

Subsequently, if you are someone that perhaps wouldn’t be able to refinance with another lender, this becomes a no-brainer.

And if you remortgage to a different lender?

Remortgaging to another lender would involve a full application process, meaning all the above procedures would be necessary. You could also expect a lengthy legal process which we have known to take two to three months in some cases.

Naturally, these matters must be weighed up when considering whether it’s going to be right for you to stay with your existing lender or swap lenders along with the interest rate and associated fees.

Late applications

If you have left it late, remortgaging with your current lender can be very beneficial. If you don’t have time to go through the full legal process of switching lenders, yet you don’t want to incur the often dramatic difference in monthly payments by slipping onto your existing lenders standard variable rate, product transfers or switches, as some lenders call them, this can mean a very quick turnaround. Sometimes you can switch as late as the 25^th of the month for your new deal to start the following month.

However, its still true that mortgage providers are careful about what they offer existing borrowers.

Rarely, lenders will offer market leading rates though typically offer rates which are pitched firmly at being tempting enough to have yet not as good as going elsewhere.

It was reported last year that new data available highlights how homeowners who choose to take a product transfer from their lender could be paying £600 more a year than necessary.

Advice

For these reasons and more, it is hugely beneficial to speak with a broker who can compare your existing customer options with the wider marketplace. Then you can be truly sure you are getting the most suitable and best value product for your circumstances at that moment in time.

February 2019