Let your feet do the talking

Borrowers no longer have to bear unfair mortgage deals, but the choice can be baffling

The UK mortgage market is vast, almost 11 million home loans are now in force around the country. Rampant competition between lenders has spawned some very cheap deals - but many home-owners still put up with poor-value loans.

The UK mortgage market is vast, almost 11 million home loans are now in force around the country. Rampant competition between lenders has spawned some very cheap deals - but many home-owners still put up with poor-value loans.

The Consumers' Association this month highlighted 20 "scams" in the mortgage market. It says lenders' widespread practice of calculating interest annually rather than daily results in borrowers paying on debt they no longer owe while many mortgage providers discourage borrowers from repaying debt by setting high minimum limits for lump sums.

Increasingly, borrowers are voting with their feet. Neil Walkling of the Consumers' Association says the proportion who switch mortgage providers to get a better deal has grown massively over the past few years. "They are much more aware of the huge amounts of money they can save," he says.

But the bewildering array of mortgages on offer can turn choice into torture. "People think they're going to be ripped off, but the reality is, remortgaging is the simplest way of saving money," says Phillip Cartwright of brokers London & Country Mortgages. A home-owner with a £100,000 mortgage would save £40 a month by remortgaging to cut their rate of interest by one per cent.

But is the potential saving worth the initial cost of changing your lender? "It is a question of sitting down and doing the maths," says Siobhan Hotten of mortgage brokers John Charcol. Generally, the smaller the mortgage the less worthwhile remortgaging becomes.

The cost of switching lenders can be about £700. The new lender needs a valuation; there are solicitors' fees; arrangement fees in some cases, and sealing or administration fees to pay the old lender. But many lenders offer those who change to them financial incentives.

How to spot a good deal? "When most people are looking at mortgages, they tend to be swayed by the headline rate, but it's vital to look beyond at the terms and conditions," says Ms Hotten. Arrangement fees, completion fees, redemption penalties and compulsory insurance can all add up, and in some cases cancel out the benefit of a lower interest rate.

Many lenders charge an arrangement fee - as much as £300. On a £60,000 loan, this alone is equivalent to an extra half a percentage point on the rate of interest in the first year.

Mortgage Indemnity Premiums, or MIPs, can make a big difference to the value you get from your loan. Lenders often require borrowers to pay this one-off insurance premium if the sum they're borrowing is high in relation of the value of the property - known as the loan-to-value (LTV) ratio.

National Counties BS, for example, requires anyone borrowing over 75 per cent of the property value to pay a MIP. For someone borrowing £95,000 against a £100,000 house this would cost £1,500. But several lenders don't require MIPs, including Bradford & Bingley, Cheltenham & Gloucester, and still more who only demand it on loans over 90 per cent LTV.

You should look carefully at any redemption conditions. Many deals force you to pay a penalty if you pay off any capital, above the level agreed, before a certain date. Penalties are often so high they effectively stop you switching lenders for anything up to seven years. Even if you started with a competitive rate of interest, three years into the loan you may find yourself paying a variable rate above that charged elsewhere. In general, the lower the initial rate, the longer the tie-in.

Even if a product carries no redemption penalties, the lender's standard redemption conditions - for all its mortgages - may prove costly. Under the Britannia BS's rules, 40 days' interest is payable if a mortgage is repaid in the first two years. Bina Abel at Bradford & Bingley says: "Increasingly lenders are doing away with extended penalties, and there should be something in every lender's portfolio without long tie-ins."

It may be worth putting up with a tie-in, if you get some security on the rate. "Cashbacks wouldn't exist if it weren't for redemption penalties," says Ms Hotten. "They enable the initial rate to be very low, and this can give some borrowers the cash-flow advantage they need."

If you opt for a tie-in, it may be worth choosing a provider which allows you to pay off at least some of the loan. Abbey National lets borrowers reduce their loan by up to 10 per cent a year without penalty.

Flexible mortgages allow you to overpay or underpay and usually calculate interest on a daily basis, but if you do not make use of the options, it will not be worth the higher rates.

The Consumers' Association says you should collect and compare information from five lenders, including banks and building societies.

But beware. Those who took out a loan after October 1995 must wait nine months to get state help with their mortgage interest payments if they claim Income Support. Anyone whose mortgage started before that only has to wait eight weeks.

London & Country Mortgages, 01225 408000; John Charcol: 0171-611 7000

Sport
Brazilian fans watch the match for third place between Brazil and Netherlands
world cup 2014Brazil 0 Netherlands 3: Dutch pile on the misery in third place playoff
Sport
Robin van Persie hands his third-place medal to a supporter
Van Persie gives bronze medal to eccentric fan moments after being handed it by Blatter
Arts and Entertainment
books The follow-up documentary that has got locals worried
News
Ian Thorpe had Rio 2016 in his sights
people
PROMOTED VIDEO
Arts and Entertainment
Original Netflix series such as Orange Is The New Black are to benefit from a 'substantial' increase in investment
TVHoax announcement had caused outrage
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

News
Monkey business: Serkis is the king of the non-human character performance
peopleFirst Gollum, then King Kong - now the actor is swinging through trees in Dawn of the Planet of the Apes
Arts and Entertainment
Blackman: Landscape of children’s literature does not reflect the cultural diversity of young people
booksMalorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
News
One Direction star Harry Styles who says he has no plans to follow his pal Cara Delevingne down the catwalk.
peopleManagement confirms rumours singer is going it alone are false
Voices
Mrs Brown's Boy: D'Movie has been a huge commercial success
voicesWhen it comes to national stereotyping, the Irish know it can pay to play up to outsiders' expectations, says DJ Taylor
Arts and Entertainment
Curtain calls: Madani Younis
theatreMadani Younis wants the neighbourhood to follow his work as closely as his audiences do
Life and Style
Douglas McMaster says the food industry is ‘traumatised’
food + drinkSilo in Brighton will have just six staple dishes on the menu every day, including one meat option, one fish, one vegan, and one 'wild card'
Sport
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
Life and Style
Once a month, waistline watcher Suran steps into a 3D body scanner that maps his body shape and records measurements with pinpoint accuracy
techFrom heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
News
Soft power: Matthew Barzun
peopleThe US Ambassador to London, Matthew Barzun, holds 'jeans and beer' gigs at his official residence. He says it's all part of the job
Sport
Joe Root and James Anderson celebrate their record-beaking partnership
cricketEngland's last-wicket stand against India rewrites the history books
Finacial products from our partners
Property search
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

    Information Security Manager (ISO 27001, Accreditation, ITIL)

    £70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

    Biztalk - outstanding opportunity

    £75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

    Trade Desk Specialist (FIX, Linux, Windows, Network Security)

    £60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

    Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

    £35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

    Day In a Page

    Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

    How Saudi Arabia helped Isis take over northern Iraq

    A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
    The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

    The evolution of Andy Serkis

    First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
    You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

    You thought 'Benefits Street' was controversial...

    Follow-up documentary 'Immigrant Street' has got locals worried
    Refugee children from Central America let down by Washington's high ideals

    Refugee children let down by Washington's high ideals

    Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
    Children's books are too white, says Laureate

    Children's books are too white, says Laureate

    Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
    Blackest is the new black: Scientists have developed a material so dark that you can't see it...

    Blackest is the new black

    Scientists have developed a material so dark that you can't see it...
    Matthew Barzun: America's diplomatic dude

    Matthew Barzun: America's diplomatic dude

    The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
    Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

    Meet the 'Quantified Selfers'

    From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
    Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

    Five-star reviews are just the opening act for British theatre's first non-white artistic director

    Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
    Mrs Brown and her boys: are they having a laugh?

    Mrs Brown and her boys: are they having a laugh?

    When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor
    Gavin Maxwell's bitter legacy: Was the otter man the wildlife champion he appeared to be?

    Otter man Gavin Maxwell's bitter legacy

    The aristocrat's eccentric devotion to his pets inspired a generation. But our greatest living nature writer believes his legacy has been quite toxic
    Joanna Rowsell: The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia

    Joanna Rowsell: 'I wear my wig to look normal'

    The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia
    Bill Granger recipes: Our chef gives raw ingredients a lift with his quick marinades

    Bill Granger's quick and delicious marinades

    Our chef's marinades are great for weekend barbecuing, but are also a delicious way of injecting flavour into, and breaking the monotony of, weekday meals
    Germany vs Argentina World Cup 2014 preview: Why Brazilians don't love their neighbours Argentina any more

    Anyone but Argentina – why Brazilians don’t love their neighbours any more

    The hosts will be supporting Germany in today's World Cup final, reports Alex Bellos
    The Open 2014: Time again to ask that major question - can Lee Westwood win at last?

    The Open 2014

    Time again to ask that major question - can Lee Westwood win at last?