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Has your bank encouraged you to remortgage early? Watch out, you could miss the best deals

Santander has written to some of its mortgage customers offering them the option of remortgaging a full six months early without being hit with penalty charges.

The letters, sent out over October and November to customers across the UK, encourage borrowers to sign up to a new deal to save money on their monthly repayments. 

But independent mortgage brokers, infuriated by being cut out of the loop, have warned customers that switching deals to another Santander mortgage might mean they don't get the best deal available in the market.

A spokesman from Santander said: 'Our priority is to provide customers with excellent products and services in a channel of choice that suits them. Our contact strategy when customers' mortgage products mature is clear and we have always written to customers three or four months prior to maturity. 

'In the letter we send, we outline their options for securing a new rate, including transacting directly with us via telephony if they need advice, digitally or through their broker who can provide a whole of market view.'

The lender said its decision to contact customers earlier than usual had been driven by the expectation that it would see a spike in demand to remortgage early next year following August's cut to the base rate from 0.5 per cent to 0.25 per cent. 

The spokesman added: 'In order to maintain service levels during 2017, when we anticipate there will be a demand for support, we have contacted customers slightly earlier than the usual. This is the first time we have done this and involves a relatively small number of customers.’

But mortgage brokers have alleged that the move is part of a wider shift by banks and building societies to entice customers into so-called 'product transfers'.

This is where you remortgage onto a new rate with your existing lender when you come to the end of your existing mortgage deal but don't borrow any more money or change anything in the contract. 

Because your details remain the same, the lender doesn't always count this as 'new' mortgage lending and so doesn't have to report it to the Bank of England or the Financial Conduct Authority. 

This means that banks and building societies can say that they do not need borrowers to take financial advice as part of the remortgage process, and it can be done 'execution-only' - saving them time and money.

That may also be quicker and simpler for the borrower but means that they miss out on advice that could get them a better deal and on comparing rates with other lenders. 

A paper published by mortgage broker trade body, the Association of Mortgage Intermediaries, claims that mortgage lenders are sliding between £80billion and £100billion of mortgage lending under the FCA's radar this year through product transfers.

One in three mortgages 'swept under the carpet'? 

If the figures are correct, it means that more than one in three mortgages in the UK is made on this basis. This year gross mortgage lending is forecast to be about £260billion in total. 

Doing a product transfer can take as little as 30 minutes and be done entirely online or on your mobile - making it much the easiest way to remortgage. By comparison, going through the advice process involves sometimes several hours of back and forth between you, the broker and the lender.

But, depending on your lender, transferring to a new rate through a straight switch might not trigger a new valuation of your home.

And brokers are now claiming borrowers could be hurt financially as a direct result.

This might seem academic, but if your home has risen in value since you took your mortgage, your loan-to-value is disproportionately smaller even though you've made fixed repayments. 

In parts of the country where house prices have risen significantly over the past few years, this could make a difference to the rates offered by the bank as the lower the LTV, the lower the rate.

Robert Sinclair, of the AMI, said: 'This affects rate, affordability and ultimately how much the borrower repays over the lifetime of the loan. It cannot be acceptable to continue to sweep this under the carpet.' 

FCA to investigate 

The issue has gone straight to the top with the financial watchdog confirming this week that it will investigate 'the approach lenders and brokers take to incentivising consumers to switch products, with a particular interest in whether lender practices might reinforce consumers' behavioural biases'.

By this it means that customers tend to focus on finding the cheapest rate without considering how fees and charges add up and make loans more expensive than they might seem. 

Lenders meanwhile argue that there is no evidence to suggest that borrowers are losing out by transferring onto a new deal with the same lender.

Sue Anderson, of the lender trade body the Council of Mortgage Lenders, said: 'It seems unlikely that there are significant issues for such borrowers – if they are not changing their borrowing level or making any other material amendments to their mortgage, the lender will not need to re-assess their affordability.

'The main question from the borrower’s perspective is simply whether or not the product and price being offered under the transfer is sufficiently attractive for them to stay - bearing in mind the additional administration and potentially the transaction costs that may also be involved in remortgaging to a different lender.' 

Source:  thisismoney.co.uk
 

Sam: 11th Jan 2017 14:05:00

 

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