The mortgages that come with strings attached
We all want a great mortgage deal, but are you willing to jump through hoops to get it?
My mortgage is up for renewal soon and, as a result, I have been contacted regularly by my lender in an attempt to get me to stick with them. The latest phonecall was particularly interesting because they offered me a better mortgage deal if I switched my current account over to them.
My answer was a resounding no, because although the idea of saving money on my mortgage is appealing, switching my current account – and all the associated form-filling and administration - is not something that I really fancy doing. I can also get a better mortgage deal than the one they offered me by shopping around, so it’s a no-brainer really.
However, it reminded me that there has been an increase in financial products that come with strings attached. Banks and building societies are keen to get you to tie yourself to them with as many products as possible, for a few reasons.
- They make more money from each customer that way, and dealing with fewer, more profitable account holders is clearly good for business.
- You are far less likely to leave them if you have a range of accounts with them. It feels like too much of a wrench. Cross-selling is a great retention tool for banks.
- In the current climate, where financial providers need to be really careful about their lending decisions, having a comprehensive picture of your wider finances is very useful. It also means they can target deals to those who present less of a lending risk.
Of course, cross-selling is nothing new, but mortgage lenders do appear increasingly keen on offering deals to their existing bank account holders.
Many banks and building societies offer preferential deals to banking customers, and my guess is that if you look at the mortgages on offer from your current account provider, there will be better rates for you as an existing customer.
HSBC is one lender to operate this type of pricing strategy. For example, if you have a 10% deposit and you want to get a two-year fixed rate, it charges 4.99% and a £599 fee. A great deal in itself.
However, for its Premier Current Account customers, the fee drops to £299 – so they save £300. Customers of its Advance Current Account don’t do quite as well; they pay a reduced arrangement fee of £399, saving £200. The lender offers these discounts to Premier and Advance customers across much of its mortgage range.
NatWest does something similar with its mortgage products. It has deals that are available to everyone, lower rates that are just on offer to current account customers, and even better deals to those with its Advantage, Private or Business current accounts. The lender also offers its own banking customers some exclusive deals that simply aren’t available to others.
The Cumberland Building Society takes a different approach. It offers £100 cashback on certain mortgages, but you have to have a current account with them in order to benefit from the perk because that’s the only place the cashback can be paid into.
It also offers higher loan-to-value ratios to borrowers within its branch operating area in Cumbria. If you live outside that area you need at least 25% upfront to get a deal, but this drops to 10% for local residents. Other smaller building societies also offer more attractive deals to local customers.
Leeds Building Society offers mortgage borrowers a significant discount on some of its mortgage rates, but only if they take out home insurance with them. By taking the cover you can get a discount of 0.24% off your mortgage rate – depending on your mortgage size, the discount on your mortgage payments could almost cover the cost of the insurance policy.
But are any of these deals actually worth it?
No free lunch
All of these perks are only worthwhile taking advantage of if you actually want the extra account or product that comes as a condition of the deal.
So with the Leeds Building Society mortgage discount, it’s worth it if you need home cover, you are happy with the product offered and you think the discount it will give you will more than offset any savings from shopping around for a different insurance policy. In other words you need to do your sums.
The HSBC mortgage deals are only available to customers with particular current accounts – and they don’t include the bank's standard bank account.
There's another important thing to consider with the HSBC accounts, before you start to fill out your application form - the fees.
Customers with an Advance account are eligible for the reduced mortgage rates, but this bank account comes with a monthly price tag of £12.95 – or £310 over a two-year fixed rate period (which is more than the saving on the arrangement fee). For this you do get other freebies as well as the mortgage discounts, which you may or may not want or need.
To hold a HSBC Premier Account you must have either £50,000 or more invested with the bank or an income of £100,000 paid into your account and a mortgage or other product with them. No wonder the bank wants to offer these clients a sweetener.
If you already have either of these accounts, then the mortgage offer is clearly a great perk of your account, but if you don’t, you need to decide whether it’s worth switching.
Of course, everyone likes to think they have a got a discount or a better deal than others, but it’s only worth it if you end up paying less overall than you could get elsewhere. Admittedly, it can be hard to compare products when they are tied in with something else, as the costs get blurred.
The best thing to do is to shop around the whole market for the products that most meet your needs, including mortgages, home cover and current accounts. If any of them offer a linked product that looks appealing that’s great, but if not, chances are going for separate deals that best meet your needs will be a better option.
More on mortgages:
At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email firstname.lastname@example.org for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage