As mortgage rates fall, do you qualify for the cheapest deals?
Mortgage lenders have been battling to offer the lowest home loan rates ever seen – but the eye-catching deals hitting the headlines aren’t available to everyone.
It’s hard to know which ones you could get access to and even harder to compare all options easily – especially if you think your income or finances might mean some lenders will turn you down.
When you search for a mortgage online through price comparison sites, the results generated tend to be ‘typical’ mortgage rates indicative of what a ‘perfect’ borrower would be offered.
But worrying you’re less than perfect is not a reason to remain on your lender’s expensive default rate.
RateSwitch is a new online service that allows you to search remortgage deals based on the home loan you already have. It is the first online comparison tool that compares mortgages available directly, through brokers only and from your existing lender.
You enter a few key pieces of information including your lender, the amount your loan is for and also your property value and the tool will rank alternative deals available to you.
It’s then possible to plug the new rate and your remaining term in to a mortgage calculator which will show you the new monthly payment you’d be making.
How does it work?
The point of RateSwitch is really to show those on their lender’s default variable rate that they can remortgage to a better deal – even when they think they can’t.
This is because there are special rules – called ‘transitional rules’ – that mean if you have a mortgage already, your existing lender is bound to give you a cheaper rate if you can show you’re affording your payments at the moment on a higher rate.
This is true even where you might not get approved for a new mortgage with another lender because of a poor credit score or a change in your financial circumstances.
Transferring to another deal from your existing lender means you escape the full ‘affordability check’ under the tighter mortgage rules that came in two years ago.
It doesn’t just show you these ‘retention’ rates – RateSwitch also compares direct mortgage deals and brokered mortgage deals – it’s a broader comparison than you get elsewhere.
The firm can also arrange the mortgage for you – they have a team of fully qualified independent mortgage advisers – or they’ll help you find the deal you want and set you on your way to apply yourself if you’d prefer.
Is it just another price comparison website?
Traditional comparison sites usually have a commercial relationship with the product providers they list.
Depending on the one you use and the mortgage lenders that pay to advertise their deals on it, the range of deals you’ll see is likely to be limited.
However, the City watchdog has recently warned it is investigating this, as it might result in borrowers switching to a deal they think is the cheapest, when in fact it isn’t.
Comparison sites also won’t include any deals that you might qualify for if you were to use a mortgage broker with access to lenders that don’t deal with customers directly.
And there may also be special ‘retention’ rates available from your existing lender if you decide to stay with them, which are unlikely to be advertised at all.
What’s more, not one of the traditional options allows you to see whether you’re eligible to remortgage and what you personally could save by taking a new deal.
This is largely down to a multitude of quirks affecting the rate you qualify for – including your credit record, the value of your home and where it is, your age and the remaining number of years left on your mortgage and the sort of income you have and whether you’re self-employed.
Short of ringing up your mortgage lender directly, or asking a broker to run the numbers for you, it’s difficult to know exactly how much you could save if you remortgage to another rate.
Perhaps it’s partly down to this that so many people don’t bother. Estimates suggest up to 40 per cent of homeowners with an outstanding mortgage are on their lender’s standard variable rate – typically around 4.75 per cent.
Compare that to the cheapest two-year fixed rates which can now be got for less than 1 per cent.
Yorkshire Building Society is offering a two-year discounted rate at just 0.89 per cent – the cheapest mortgage rate ever.
And yet recent mortgage broker research claims only 6 per cent of borrowers have considered switching to a better rate since the Bank of England cut the base rate to 0.25 per cent in August last year.
When asked what had stopped them from switching, one in five said the process would be ‘too much hassle’, while 14 per cent said ‘it all seemed too complicated’.
But it’s potentially costing them thousands of pounds they don’t need to spend.
According to HSBC research, the average homeowner on a lender’s SVR could save around £340 a month by fixing their mortgage.
What’s the story behind RateSwitch?
RateSwitch has been designed by Cardiff-based mortgage adviser Lee Flavin, who was determined to serve customers better by helping them compare all mortgage rates in a meaningful way for free.
‘I was really frustrated that clients couldn’t find the information they needed anywhere,’ he explains.
‘It doesn’t seem like too much to ask to be able to compare mortgages so you can see what all your alternatives actually are. I really just wanted to offer people a useful tool that helps them see what’s on offer from everywhere.’
Initially the tool was designed to help borrowers who felt they couldn’t remortgage to a lower rate because they didn’t think they’d be accepted.
Flavin explains: ‘I had arranged a mortgage for a young, recently engaged couple who came back to me at the end of their two-year fixed term as a married couple with credit card debts from their wedding. This meant their borrowing capacity had reduced to the point where they were unable to remortgage between lenders, despite both receiving salary increases in the meantime.’
‘Another client was a successful architect who asked for a review of his residential mortgage and found his new borrowing capacity was reduced to nil after doing a complicated buy-to-let. This was despite successfully expanding his business in the meantime, after drawing a minimal salary and no dividends.’
He adds: ‘The solution was to review their lender’s retention and loyalty product range because I knew that they would be able to apply their “existing customer” deals to each mortgage, but without the intervention of a credit check and affordability assessment. I knew this was possible as a broker, but normal customers didn’t have any way of checking this online easily.’
Is it worth doing?
David Hollingworth, of independent mortgage broker London & Country, said RateSwitch is worth checking as mortgage lenders are increasingly trying to keep borrowers by offering existing customers the best rates.
He said: ‘The RateSwitch site puts a real focus on the fact that lenders are taking customer retention seriously now, as they realise that a high standard variable rate won’t cut it. As a result, the rates on offer from your current lender may be the same, or in some cases better than those on offer to a new customer.’
‘Of course it’s still crucial that borrowers continue to hold up the offer from their current lender against what they could get from another lender to ensure that they get the best overall deal for them.’
By Sarah Davidson for thisismoney.co.uk (18th May 2017)