Can you cushion the blow when the cheap loan leaves home?

Many borrowers face soaring repayments as fixed deals come to an end. Laura Howard looks at their options

The latest cut in interest rates will not be enough to stave off the payment shock that awaits the estimated 1.8 million borrowers coming off cheap fixed-rate mortgages this year.

The very best in today's market is Yorkshire building society's two-year deal priced at 5.09 per cent interest with a £995 fee, according to financial analyst Moneyfacts. But this still doesn't compare well with Portman's equivalent deal two years ago: 4.3 per cent with a £499 fee. So even a homeowner who has bagged both these fixes will be £90.61 a month out of pocket on a £200,000 repayment mortgage.

And the hurdles don't end there. In the new, tighter lending landscape, access to providers with the best deals has become more restricted, says Melanie Bien, director at mortgage broker Savills Private Finance. "The credit crunch is making it harder to get funding, particularly for those with blips on their credit histories. It may be the case you can't remortgage to another lender anyway."

But sticking with your current provider after your cheap home loan has come to an end is itself a case of hit and miss, although many borrowers will be better off now than they used to be. In the past, they would have simply been transferred to their lender's expensive standard variable rate (SVR), currently averaging 7.41 per cent, Moneyfacts reports. In the past few years, however, lenders including the Halifax, Abbey and Nationwide have introduced "retention rates" to persuade customers to stay.

Andrew Montlake, a partner at broker Cobalt Capital, says: "Lenders can be pretty guarded about these rates as what they really come down to depends on how much a lender wants to retain that borrower's business. But typically, they are priced between 0.3 and 0.5 per cent higher than those mortgage rates available to new customers."

For example, according to research from Savills Private Finance, customers new to the Halifax can net a two-year fix at 5.67 per cent, while existing borrowers would have to pay 5.74 per cent. There is also a higher arrangement fee for existing customers switching to a new fix – £1,499 compared with £999 – and they will have to fork out for legal and valuation fees, from which new borrowers are exempt.

Some lenders are trying to buck this trend by offering short-term incentives to retain customers coming off cheap deals. HSBC, for example, has promised to match the price of any fix that draws to a close between 1 February and the end of April. This rate can then be taken for a further two, three or five years.

However, borrowers will pay a fee for the privilege, and this will vary according to the size of the loan and how low the fixed rate was in the first place. In exceptional circumstances, the borrower may be refused, admits HSBC spokes- man James Thorpe.

"In effect, then, you come back to the same grey area surrounding retention-rate policies," says Ray Boulger, technical manager at broker John Charcol. But Mr Thorpe says that, so far, 93 per cent of borrowers have paid a fee of £500 or less.

For overall long-term value, the Woolwich makes its whole range of mortgage deals available to all borrowers – new and existing. "And even if a borrower has not managed to arrange a switch before their existing deal expires, they will be transferred to a special tracker deal of base rate plus 0.95 per cent instead of our SVR," says Woolwich spokes- man Andrew McDougall.

But in the vast majority of cases where retention rates are employed, borrowers should be wary of accepting the first deal they are offered by their existing lender, as they will almost always find better rates elsewhere. And according to Mr Boulger, most "prime" borrowers – if they have looked after their credit rating – should not have trouble remortgaging to these deals.

On the other hand, there are circumstances where it would make sense to stay with the same lender and opt for its retention rate, says Mr Montlake. "The first is if your financial situation has changed, such as you have become self-employed, earn less or have damaged your credit rating. This is because when you transfer products but stay with the same lender, a credit check will not be carried out. Second, if you are in a hurry, staying put can mean you transfer to the new deal immediately instead of waiting over three weeks to switch lenders."

News
people
Sport
FootballGerman sparks three goals in four minutes at favourite No 10 role
News
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Sport
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
athletics
PROMOTED VIDEO
Sport
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
music
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
New Articles
i100
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam