You got your windfall - so why wait around?

Now might be a good time to move your mortgage, writes Dido Sandler

Savers with the Halifax and Alliance & Leicester (A&L) now have no reason windfall-wise to keep their money with the former societies and might well get a better rate by shopping around. But many mortgage borrowers could also save money by switching to a different lender.

The potential beneficiaries are those paying the new banks' standard variable mortgage rates, which have just been increased to 7.95 per cent. Remortgaging would allow these borrowers to take advantage of the gamut of discounted and fixed-rate deals. And by switching to one of the remaining building societies, they could also line themselves up for another potential windfall.

Patrick Bunton, manager at London & Country, a firm of mortgage brokers in Bath, said a borrower with a loan of pounds 70,000, representing less than 70 per cent of the value of a property, would save pounds 1,382 a year for two years, by switching from a Halifax standard variable rate of 7.95 per cent to a two-year discount deal from National Counties building society. National Counties is giving a 1.55 per cent discount for two years off its already competitive standard variable rate of 7.39 per cent, a rate of 5.84 per cent. Furthermore the society will also pay most of a borrower's remortgaging costs.

Mortgage brokers say they have seen a flood of business from Halifax and A&L customers since the free share handouts. Mr Bunton says since the Halifax float this month his company had received two to three times the usual level of remortgages from Halifax borrowers, while in May and the first week of June there was a surge of A&L borrowers. One lender, Abbey National, is even running an advertising campaign aimed at Halifax and A&L borrowers.

Mr Bunton said Halifax only had itself to blame for this flurry of remortgaging, having taken so long to complete its conversion into a bank and in effect keeping thousands of borrowers locked in paying higher rates than they needed to. Ian Darby, the marketing director of John Charcol in London, says strong interest in remortgaging, particularly into favourable fixed- rate deals, is being fuelled by fears of further base rate rises. These, the broker believes, will push lenders' standard mortgage rates up to 8.75 per cent by the end of the year, a further 0.8 per cent from the hike to 7.95 per cent by the Halifax and others.

However, Clive Miers, the chairman of Miers Mortgage & Insurance Services in Shipley, says that remortgaging is not for everyone and people need to do more than compare loan rates in deciding whether remortgaging is worthwhile. It costs on average pounds 750 to transfer a standard variable rate pounds 50,000 loan on a pounds 75,000 property to another lender, he says. These costs include legal fees and valuation fees each costing pounds 175 and the local authority search at pounds 80. The existing lender may charge you a deed production fee and a "sealing" fee to close the existing mortgage, on top of the "headline" redemption costs. In addition to the pounds 750 of switching costs the new lender could charge hundreds of pounds for arranging the new mortgage. The larger the loan the more worthwhile it is to remortgage. Individuals borrowing pounds 30,000 may have little to gain. Larger mortgages gain much more, as many costs are the same.

Mr Miers identifies some borrowers for whom remortgaging is unlikely to be worthwhile:

Individuals with loans of more than 75 per cent of the value of the property who will have to pay a new mortgage indemnity guarantee (MIG) premium. On a pounds 60,000 property the Mig premium on a 95 per cent loan might be pounds 960.

Some borrowers on standard variable rate, who previously enjoyed discounts, will be locked into payments for a given period as a condition of the discount. To exit these lock-in periods borrowers have to pay penalties that can be more than six months' interest repayments.

Borrowers who wish to pay off lump sums or accelerate payments will not be able to do so if they switch from the more flexible standard variable rate to a more restrictive fix or discount.

If you have had any credit problems or arrears with your lender, a new one is unlikely to accept your business.

Mr Miers adds before remortgaging to another lender individuals should check on the deals for existing customers offered by Halifax and A&L. Halifax charges pounds 150 to pounds 200 to move existing customers onto a fixed rate, a considerable saving compared with the costs of remortgaging with another lender. He notes that Halifax is clever in the way it pitches offers so that it makes it less attractive for individuals to move, once they take into account all the costs.

Another way of controlling mortgage costs is to switch to a mortgage lender who is prepared to pay the bulk of the fees. London & Country says National Counties and Stroud & Swindon building societies are among those who offer products that pay borrowers' costs.

q Dido Sandler works for Financial Adviser, a specialist publication.

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