The Mortgage Clinic: 'Why can't I get my lender's cheaper fix?'

Our building society fixed-rate mortgage ends soon, so I visited its website and saw another two-year fix. On application, I was told it was only open to new customers, and the best on offer was a fix matching their variable rate – and I'd have to pay for fixing it! As customers of nine years, I feel we're being penalised. Is this normal practice? ATB, London, by email

Loyalty is a wonderful thing in most of our life – but not from the point of view of financial services companies.

Once you stop being a "valued new customer" and become a loyal regular instead, many companies stop offering you decent deals. Why? Because it knows it can count on your apathy not to hunt for better value elsewhere.

But that's business, says Melanie Bien at broker Savills Private Finance. "Your bank isn't the only one that has two levels of pricing on its mortgages – one for existing customers and another to attract new business." She adds, however, that not all lenders do this to such a degree. "Since you can only fix at the same level as its standard variable rate (SVR) for a fee, your lender is obviously putting more effort into attracting new customers than it is into keeping you."

The normal advice would be for you to take your business elsewhere. Thanks to the credit crunch, though, these aren't normal times and you could find that your building society's variable rate might actually be one of the cheapest available to you.

Figures from Moneysupermarket.com suggest that July will be a financially difficult month for many home owners, who are coming to the end of cheap fixes taken out in summer 2006 when many were then available for 4.5 per cent.

Today, most deals are well over 6.25 per cent, forcing many households to find more than £150 a month extra to pay the mortgage.

In your case, use your building society's variable rate offer as a benchmark to scout around, advises Richard Morea at broker London & Country. "If your current lender is offering decent rates for new customers, then the chances are that you – as a new customer elsewhere – will be able to get a comparable rate by remortgaging with a rival."

Don't forget, though, that moving away to a cheaper rate will likely incur legal and valuation costs on top – so make sure you factor these in – and try both a broker and telephoning lenders direct to cover all options.

"If you can't find a cheaper fix elsewhere, you could consider your lender's SVR – which won't cost you a fee – where you can wait and then switch to a cheaper fix when one becomes available," says Bien.

If interest rates rise in the meantime, be prepared to pay extra on the SVR.

Send us your questions and you could receive £50 to spend at Amazon

Foxed by jargon? Worried by the credit crunch? Email a question to mortgageclinic@independent.co.uk. We will not reveal your identity, and we cannot give specific advice. If your question is printed, you'll receive a £50 voucher from Amazon.co.uk, so you can kit out your home with anything from a lawnmower to an espresso machine. www.amazon.co.uk/homeandgarden

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