Are you still paying too much for your mortgage?

Only one in 20 borrowers have switched lenders to take advantage of better deals elsewhere. Clifford German explains how it is done
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The Independent Online
Five million mortgage holders are still stolidly paying standard variable rates on their mortgages and forking out an average pounds 100 a month more than they need to.

In spite of all the publicity about the mortgage war, an NOP poll reveals today that inertia and ignorance still rule. Although more than 75 per cent of mortgage holders have thought about remortgaging their existing property with a different lender, only 5 per cent have done so.

Some thought the costs of remortgaging, including getting a new solicitor and a new property survey, would outweigh the savings. Others were afraid of making the wrong decision. Others again simply could not see the advantage. But the biggest single reason, according to the poll, is the mistaken belief that people only remortgage to pay off debts or raise more capital to spend on something else, whereas the real reason is to save money.

In fact, as most readers of this newspaper will know, mortgage lenders have been offering special deals not just to first-time buyers and to people moving home, but increasingly to customers of other lenders who have no intention of moving home but can be tempted to pay off their loan and remortgage with a different lender offering a better deal. For the past two years, most lenders have been offering discounts of up to 6 per cent off the standard variable rate of interest spread over one, two or three years.

Some packages offer up-front cash rebates of up to pounds 6,000 to tempt borrowers to switch, plus cash to cover the legal costs of hiring the solicitor to arrange the redemption of the old mortgage and the setting up of the new one, as well as the costs of getting a new survey on the property and a new search of local authority records to check that the borrower has legal title to the property. Other packages consist of tempting low fixed-rate deals at less than the present standard variable rates. The permutations are endless in an attempt to steal business in a static mortgage market.

Most deals require that borrowers take out the new mortgage for at least five years, and impose a penalty on borrowers who take the special deal and then want to redeem the loan for up to two years after the special rate has come to an end. Some add back up to 0.25 per cent to the rate if borrowers do not take out buildings and contents insurance with the lender's tame insurance company. Most prefer to lend only 75 to 90 per cent of the property valuation. But they still add up to an attractive deal.

So why the modest take-up? One problem has been the cost of advertising. Some of the best offers have come from smaller mutual societies, such the Yorkshire, the Coventry and the Northern Rock before it decided to become a bank. But by definition they have relied heavily on the media to promote their wares (Independent readers should consult the table of best borrowing rates in Saturday's Weekend section). Mortgage brokers such as John Charcol will track down the best deals, although they will probably want a fee of pounds 200 to pounds 300 to do so, while Bath-based London & Country Mortgages charge no fee but will hope to earn commission by providing an endowment or insurance policies.

Today, Mortgage Intelligence, which claims to be the largest network of specialist mortgage brokers, has linked up with a number of lenders to create a range of exclusive mortgage products. They include a 5 per cent discount from the Lambeth Building Society and the Scottish Building Society, to be taken over five years to suit the borrower, eg a 3 per cent cashback and a 1 per cent discount for two years, or a 1 per cent cashback and a 1 per cent discount for four years; or a 3 per cent discount for a year plus a 1.5 per cent cashback, worth an estimated pounds 170 a month gross on a pounds 68,000 mortgage from Bristol & West Remortgage; or a 2 per cent discount for 18 months plus a pounds 400 cashback and pounds 315 towards legal fees and a free valuation from Bank of Ireland Remortgage. Fixed rate deals are also available. Brokers fees may be payable, but Mortgage Intelligence also promises to create new products every month. Call 0800-246000 24 hours a day for details.

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