New customers are left out of best mortgages

Unless you've got a big deposit, the better deals, those with lower fees and interest rates, go to existing clients. Chiara Cavaglieri reports

(CHRIS RADBURN / PA)

In spite of more mortgage products and loosened lending criteria, you could still have a fight on your hands to get the right deal. New research by analysts Defaqto reveals that a quarter of mortgage products available today are restricted to the lender's existing customers, leaving the rest to face higher rates and high loan-to-value (LTV) ratios.

The number of mortgage products has increased from 1,686 in July 2009 to 2,948 today, but many of these deals are only available to the lender's existing savers, members and borrowers and over 15 per cent are just for existing current account customers. Defaqto says that the typical deal available to existing customers is between 0.05 and 0.2 per cent cheaper that the lender's standard mortgage range while other lenders offer more attractive LTVs and reduced fees.

"There is a tendency to offer slightly better rates, or lower fees and higher LTVs, than on their standard mortgage range, to a lender's current account customers and, in many instances, these may be restricted to added value current account customers," says David Black, banking expert at Defaqto.

Some of the UK's biggest lenders offer special mortgage deals to their current account customers including Halifax, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland, Santander and the Co-operative Bank. Lloyds TSB recently reduced mortgage rates by 0.2 per cent for its current account customers looking for a new mortgage deal, as long as they deposit at least £1,000 into the account each month. The financial benefits are not to be sniffed at: borrowers opting for a 3.99 per cent fixed rate repayment mortgage would pay 3.79 per cent, saving nearly £400 over two years.

Similarly, HSBC bank account customers are offered a two-year fixed rate mortgage (until 31 August 2012) for 80 per cent LTV at 4.39 per cent with a £299 fee, while non-current account customers pay a £599 fee.

Nationwide has recently reduced the rate on various deals and offers an exclusive deal for existing borrowers on a two-year fixed rate deal at 3.58 per cent with a £495 fee and maximum 95 per cent LTV.

With special rates on offer to selected borrowers, should first-time buyers and those looking to remortgage make the most of these incentives, or can competitive deals be found elsewhere?

"It's always worth asking your existing lender what they can offer you as a new deal. When your existing deal is coming to an end, have a chat with your lender – or broker if you have one – and then compare what your existing lender will offer you with what's available elsewhere," says Mr Black.

After peaking in August 2009, mortgage rates have steadily fallen as lenders have relaxed their lending criteria and become more active in the mortgage market, making it easier for many homeowners to remortgage. "Those with larger amounts of equity will find plenty of mortgage deals on offer and recent moves in the market have tended to be in cutting rates," says David Hollingworth from brokers London & Country.

However, the balance is still in favour of buyers with big deposits and pristine credit records, so a 25 per cent deposit remains the benchmark for the most competitive deals.

After house prices tumbled at the height of the recession, many homeowners were left with a particularly high LTV. Although valuations in property prices have picked up, many are still struggling and may have no choice but to remortgage with their current lender.

"With a stabilisation in house prices, the huge number of down valuations has dissipated to an extent, although this will remain a factor. The key is to be realistic about current valuations and although the market has ticked up a little, prices are by no means rocketing," says Mr Hollingworth.

In these circumstances, it makes a big difference whether or not the existing lender has a competitive standard variable rate (SVR). This is something of a lottery with rates varying from less than 3 per cent to more than 6 per cent. Cheltenham and Gloucester, for example, has an SVR of 2.5 per cent, while Kent Reliance building society's SVR is 6.08 per cent.

"Few lenders offer mortgages for those with 10 per cent equity, let alone anything lower, so you may find that you simply can't remortgage elsewhere. This is where your existing lender might help," says Melanie Bien, a director of independent mortgage broker Savills Private Finance. "For example, Nationwide offers competitive remortgage fixes and trackers to those with just 5 per cent equity in their homes – but they must be an existing customer."

For first-time buyers, the biggest hurdle is finding the deposit, but now there is hope for many with the doubling of the stamp duty tax-threshold and an increase in the number of high LTV deals for new buyers. Analysis by comparison site Moneysupermarket.com shows the number of mortgages available at 90 per cent LTV is at its highest since December 2008. The average rates of these have also fallen to their lowest level since October 2008 and currently stands at 5.98 per cent, compared with 6.02 per cent last month. The most notable of these is a new 90 per cent LTV mortgage from the Post Office for a two-year fixed rate at 5.45 per cent with a £999 fee.

However, although the number of deals at 90 per cent has increased to 162, borrowers with a 25 per cent deposit have 694 deals to choose from. Those with a small deposit are paying nearly 5 per cent above the base rate. Far more competitive deals can be found, particularly for those with a 30 per cent deposit.

"This security won't come cheaply. Five-year fixed rates are available from around 4.5 per cent, while two-year fixed rates start just below 3 per cent with HSBC offering a deal at 2.99 per cent up to 70 per cent LTV," says Mr Hollingworth.

Expert View

Melanie Bien, Director, Savills PF

It is always worth asking your existing lender what deal they will offer you. It gives you a starting point, a benchmark against which you can measure other products. However, you should not assume that anything your existing lender offers is the best option for you; always compare this with the rest of the market.

There is always some marketing spin to be wary of, particularly as the banks are keen to keep their existing customers, especially those with significant equity in their homes. But if you are in this position, you are attractive to other lenders so it is worth bearing this in mind when shopping around for the most competitive deal.