Phone deal cuts mortgage costs

IF YOU are one of the 2.7 million motorists who insure with Direct Line, and are aged between 30 and 50, the chances are you will have received a mail-shot asking if you would like to switch your mortgage from your existing borrower to the company.

Direct Line is offering a current variable mortgage rate of 7.42 per cent, nearly a full point cheaper than many banks and building societies.

Direct Line's product is a straight repayment mortgage, only available for loans up to a maximum of 85 per cent of the valuation a surveyor will put on your property. But survey fees will be refunded when the mortgage is completed. All-inclusive legal fees are £300 maximum, and on a mortgage of £80,000 it will save you £50 a month.

Unlike the host of tempting fixed-rate and cash-back offers, the saving could last as long as the mortgage. The lender reckons to do this through avoiding the branch networks and staff costs that conventional lenders have.

Direct Line has a small sales force and no branches, and claims it can give you a formal yes or no to an application over the phone within 20 minutes. If the answer is yes, it will send you a form to sign, arrange for a surveyor to call, check your financial details are correct and complete the mortgage.

Most other telephone sales systems use the phone to open negotiations and then require applicants to fill in a form and send it back, or attend a face-to-face interview. Direct Line's only real rivals are Bradford & Bingley Direct, Bank of Scotland Direct and First Direct. Details vary - for example, B&B charges 7.3 per cent and lends up to 75 per cent of valuation, but the principle is the same.

Like all other lenders, "phone-alone" lenders can raise or lower their rates in future in response to market forces, but the reduced rates are not intended as a loss leader. And there are no penalties for early redemption if you decide to move your mortgage again.

So is there a catch? No. Are they a best buy? That depends on how long you want to stay tied to a particular lender.

If you want one year of low mortgage payments, it is easy to get at least 3 per cent off with cashbacks and fees remitted, or up to 6 per cent off if you pay the survey and legal fees.

You can get up to 2.5 per cent a year off for two years or 2 per cent for three years and 1 per cent for five years. But you will have to repay the concessionary fee if you want to pay the loan off or remortgage again within two years after the low rate reverts to standard rate.

If you expect to stay in the same property for five years or more, a modest 0.9 per cent off from a phone-alone lender may be a better bet.