We’ve become more sophisticated consumers in recent years, increasingly used to choice and willing to look for the best deals. This applies to home loan products as well, with more of us becoming ‘switchers’. Mortgage Talk partner Steve Mansfield considers the benefits of moving your mortgage
Yes, it’s official – people’s expectations have grown up. In every walk of life, we’re becoming more and more sophisticated. And all the while, what we demand from our products and services is increasing. These days the levels of service and quality that we rightly expect from our goods and products has spiralled way beyond what our parents and grandparents could ever have imagined.
What this means is that, as a society, we have moved on from a mere acceptance of the minimal standards that manufacturers and service providers were willing to give us – and told us we should be grateful for. In fact, the whole principle of consumerism has turned this mustn’t-grumble premise on its head. What now prevails is the attitude that the consumer is king and, with it, the concept of product and service mobility.
What I actually mean by ‘mobility’ in the context of mortgages is the idea that the consumer is free to compare and contrast various product offerings from numerous different providers. And that as a result, the borrower can switch mortgages to save money. In other words, a mortgage is no longer for life – in fact in many cases, it needn’t be for more than a couple of years.
From the above, you might well conclude that any inertia to the principle of switching mortgages has well and truly worked its way through the housing market. Well, not so. There’s still a tremendous reluctance among householders to consider alternative schemes and lenders – especially where many borrowers have been with their lender for most of their house-owning careers.
In fact, this is exactly what many lenders strive hard to achieve. Millions are spent on attracting new borrowers, using advertising campaigns targeted at encouraging you to take out a mortgage with them. Then, once you’ve signed up, the lender does its best to discourage you from going elsewhere, often by making you feel that you’re part of a club. Admittedly, this sense of belonging frequently extends to little more than the occasional piece of promotional literature, but it’s still intended to keep you in the corporate fold.
Of course, it doesn’t have to be this way. What we should all do is to tackle the mortgage market with the same degree of consumer savvy with which we have already embraced many high street products. Currently, UK consumers swap their cars on average every two years. Now, although I’m not suggesting anything more than a tenuous link between cars and mortgages, the principle remains the same. When we swap our cars, most of us make a considered appraisal of the market. We assess what our needs are, then look at the models and manufacturers that are available. Then we make a decision, based on our individual requirements.
And this is exactly what we should be doing with our mortgages. While there’s nothing wrong in principle with brand loyalty – after all, many people buy the same model of car time after time – there’s every advantage to be gained in shopping around. And with such intense competition between lenders, many mortgage companies’ product portfolios change every few months anyway. So there’s even less of a reason to stay with the same bank or building society.
But while this all sounds like music to the ears of bargain hunters everywhere, savvy consumers will realise that there are sometimes pitfalls involved with the process of saving money. First up, there’s the paperwork. Certainly in the past we’ve heard of numerous situations where the application forms seem to be designed to put you off changing lenders. Thankfully, that’s no longer the case. In fact, today’s forms are intended to make the process as swift and seamless as possible.
An application to remortgage can often take as little as two weeks to complete. Many lenders have specific application forms that cut down on the number of questions that are asked, as they don’t need the same depth of information as with a house purchase. Moreover, several lenders also have specific procedures in place that help streamline the valuation and legal processes.
Even if you’re considering moving home, there are plenty of attractive deals available that would make it folly not to shop around. Most mortgagees are offering substantial discounts on their standard variable rate (SVR), as well as on a number of fixed rate products. However, given the current economic climate, as well as the undoubted strength of the housing market, the discounted rates are grabbing all the headlines.
One thing to remember with some of the appealing discounts currently on offer is: what happens when the discount period ends? Some lenders will charge a penalty for you to redeem the mortgage and move to another preferential scheme, as a way of recouping the loss of profit from your taking advantage of the offer. This redemption penalty can be up to several months’ interest charges, which can sometimes negate the advantage of moving in the first place.
Therefore, it’s important when choosing your mortgage to select the product on the basis of swapping again once the incentive period ends. Indeed, many lenders realise that you’ll probably be doing this and, while they don’t charge redemption penalties once the discount is over, they will raise their SVR to compensate for those borrowers who will swap after their incentive is over. Think of it this way: if you stay with the same lender after the deal finishes, you’ll be paying for all those other borrowers who have migrated elsewhere for another better rate.
However, don’t forget that if your personal circumstances have changed, there may be barriers to choosing another mortgage with a different lender. For example, if you’ve very recently changed jobs or become self-employed it might be hard to get one of the better deals. The difficulty here is in proving continuity of income sufficient to satisfy the lender that you will be able to carry on affording the mortgage in the future. Because of this, most lenders will insist on seeing at least one year’s accounts, and even then might not give you access to their best rates.
If this all sounds too daunting for you to consider, there is one easy solution. An independent mortgage broker will have access to thousands of products, from hundreds of different lenders. Any adviser that’s worth his salt will assist you in choosing a mortgagee and product that’s ideal for your particular circumstances and pocket. What’s more, they should have a customer support department that will automatically contact you when you’re nearing the end of the incentivised term, with a fresh set of products to choose from.
That way, you’ll always be certain to get the best value from your mortgage, without the hassle of making endless phone calls, or wandering along the high street comparing rates and schemes. And – without a doubt – that’s one of the real benefits of being a modern consumer.