Top mortgage deals for existing customers
Lenders are increasingly offering better mortgage deals to existing customers, in a bid to stop you switching.
Last week Nationwide launched a new range of mortgages – an interesting move for two reasons.
Firstly, it tweaked its rates upwards slightly, signalling the end of perhaps the shortest mortgage rate war in history. Secondly, it introduced two tiers of pricing – one for existing mortgage customers and one for new ones.
And it’s the existing customers that bag the best rates. This means that if you currently hold a mortgage with another lender and want to move to Nationwide, you will pay a premium for the life of that deal compared to existing borrowers who want to stay with the lender.
For example, the Nationwide’s new five-year fixed rate (up to 70% LTV) is 3.59% for existing mortgage customers and 3.69% for everybody else. That’s a difference of £480 over the fixed period and existing borrowers also get the non-refundable £99 booking fee waived, taking their saving to £579. It's not a fortune, but not an insignificant sum either.
Why is it doing this?
Nationwide says it is improving the way it rewards customer loyalty by offering reduced rates – its best rates - to borrowers who choose to stay with the mutual.
Whether the two-tier system is a discount for loyal customers or a premium for new customers depends on which end of the telescope you are looking down, but it looks like Nationwide is pursuing a strategy of retaining existing customers ahead of acquiring new ones.
Indeed, some mortgage pundits have suggested that the lender is trying to manage its levels of new business (i.e. limit them) by increasing rates.
Whether that’s the case or not, what we do know is that it has joined a number of major lenders that are pulling out the stops to get their existing customers to stay loyal.
Not all lenders use the same tactic of an across-the-board discount to retain their existing customers. Some simply have different product ranges for new borrowers and for existing ones.
This week Barclays (Woolwich) relaunched its deals for existing mortgage borrowers, and it has chopped some of its rates massively in a clear bid to retain clients.
Some lenders may waive or reduce the product fee for existing borrowers. Each is different, depending on how much emphasis they are currently putting on keeping hold of their clients, or acquiring new ones.
Another way that lenders try to promote loyalty is by getting current account customers to move their mortgage to them, or getting existing mortgage borrowers to move their bank account over.
Lloyds TSB for example offers its current account holders an extra 0.2% off their new Lloyds TSB mortgage rate.
HSBC offers better deals to its Premier and Advance current account customers. On a two-year fix for borrowers with a 30% deposit, the fee is £599. But this drops to £299 for existing Premier customers and to £399 for those with an Advance current account.
NatWest is currently offering £250 cashback to mortgage borrowers who bank with them, or move their account to them, and it has exclusive deals for those who hold Private, Business, Advantage Private, Advantage Business, Advantage Gold and Black current accounts.
And Santander recently launched a market-leading 2.99% five-year fixed rate mortgage exclusively to those who either already hold a Santander mortgage and are moving house, or current account customers.
Finally, Barclays (Woolwich) has a range of special Loyalty mortgages for customers with a current account.
Tying customers in with as many products as possible makes them far less likely to leave. It also means that the organisation makes more money out of each customer.
So it’s not surprising that so many of the big banks and building societies have juicy mortgage deals on offer to those who have a current account with them, or are willing to move one over.
Should you take one of these deals?
There are three reasons that these ‘loyalty’ deals may appeal.
Firstly, because you are an existing mortgage borrower and your lender has deals on offer that are better than those available to new borrowers.
Even then you need to assess whether or not the ‘exclusive’ deal you can get from your own lender is better than you could get elsewhere on the market. It may or may not be, but remember to take into account the arrangement fee and any other costs (such as legal and valuation fees) as well as the ongoing monthly repayments.
Secondly, you may already hold a current account with a bank or building society that is offering special deals and discounts to its existing customers. If you are happy with your banking supplier and the mortgage deal is really the best for your circumstances, that’s great. But again, shop around first to double check.
Finally, you might like the look of a ‘loyalty’ deal so much that you decide to move your current account over to that mortgage lender in order to bag it. That’s fine if you are happy with the admin and form filling involved (on top of what you need to do with your mortgage).
Plus you should be convinced that not only is the mortgage you will be able to snag better than any other deal you can get hold of, but also that the new current account is also going to be suitable for your needs.
Make sure you check the interest rate payable on money in credit, overdraft charges and interest rates before you make the switch.
Loyalty deals can be difficult to compare with the wider market, especially when the incentives are related to fees and charges, rather than the interest rate. They are even harder to suss out when another product is tied into the equation, so tread carefully.
If you happen to meet the exact criteria and you want the deals on offer a loyalty mortgage could be ideal, but, if you are unsure, ask a mortgage broker to advise you on the best product for your needs.
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 email@example.com 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.
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