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

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

    Recruitment Genius: Sales Assistant / Buyer

    £15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

    Recruitment Genius: Compliance Manager

    £40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

    Day In a Page

    Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

    'The economic collapse has happened. What is at risk now is democracy...'

    If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
    The science of swearing: What lies behind the use of four-letter words?

    The science of swearing

    What lies behind the use of four-letter words?
    The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

    The Real Stories of Migrant Britain

    Clive fled from Zimbabwe - now it won’t have him back
    Africa on the menu: Three foodie friends want to popularise dishes from the continent

    Africa on the menu

    Three foodie friends want to popularise dishes from the hot new continent
    Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

    Who will fill Donna Karan's boots?

    The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
    10 best statement lightbulbs

    10 best statement lightbulbs

    Dare to bare with some out-of-the-ordinary illumination
    Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

    Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

    Briton pumped up for dream meeting with world No 1
    Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

    Nick Bollettieri's Wimbledon Files

    It's time for big John Isner to produce the goods to go with his thumping serve
    Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

    Dustin Brown

    Who is the German player that knocked Nadal out of Wimbeldon 2015?
    Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

    Damien Martyn: 'England are fired up again, just like in 2005...'

    Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test
    Tour de France 2015: Twins Simon and Adam Yates have a mountain to climb during Tour of duty

    Twins have a mountain to climb during Tour of duty

    Yates brothers will target the steepest sections in bid to win a stage in France
    John Palmer: 'Goldfinger' of British crime was murdered, say police

    Murder of the Brink’s-MAT mastermind

    'Goldfinger' of British crime's life ended in a blaze of bullets, say police
    Forget little green men - aliens will look like humans, says Cambridge University evolution expert

    Forget little green men

    Leading evolutionary biologist says aliens will look like humans
    The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

    The Real Stories of Migrant Britain

    An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
    Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

    Dying dream of Doctor Death

    Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy