Don't Be Afraid to Switch and Save Money on Loans
(Yorkshire Post article, Saturday, 3rd September)

Conal Gregory looks at the pitfalls and the advantages of looking for a better deal on mortgages.

A staggering one in three pay too much for their mortgage, according to the CACI Mortgage Market Database quoted in the Treasury review carried out by Professor David Miles. This is because many mortgage holders are sitting on a standard variable rate mortgage (known as SVR). Lethargy and the fear that even inquiring about a revised mortgage is going to take too much time stops many homeowners from switching. Or it could be that complacency has set in with a belief that the current mortgage provider must be best.

Sadly, loyalty and customer retention seem to count for nought among mortgage providers. Instead, mortgage companies practically always strive for new customers, despite all the costs, rather than trying to keep those already borrowing from them.

A study by Purely Mortgages, an online broker, calculated earlier in the year that a borrower with a £100,000 interest only home loan, remortgaging every 2 years over 10 years, would have saved £10,000 in interest by comparison with someone who never remortgaged.

The saving would double for those who purchased over 20 years ago and regularly remortgage, for six out of 10 homeowners who bought their first property over a decade ago and have not moved have never remortgaged.

The housing market is showing healthy signs. July recorded the first rise in home sales since February, according to the Royal Institution on of Chartered Surveyors, and inquiries from potential purchasers rose for a second month in a row.

Four remortgaging tips are given by Intelligent Finance, the online subsidiary of Halifax Bank of Scotland.

• Think about what you are trying to achieve.
• Consider your existing mortgage first.
• Look at remortgaging packages.
• Be realistic about the timeframes.

CASE STUDY Ken Forsyth says he is 'an enthusiast of living today'. The 59 year old Halifax accountant believes in taking the maximum amount out of one's property to reflect its existing values and has recently switched loan providers. On the advice of John Hall of Cleckheaton based brokers Financial Solutions, Ken moved from a giver year 5.35 per cent fixed rate mortgage with Bank of Ireland to an offset mortgage with Intelligent Finance. A keen Rotarian and squash player, Ken borrowed 95% of the value of their 17th century farmhouse which is attached to a barn with two apartments. He likes the flexibility of the new arrangement which is on an interest only basis. "It's brilliant to offset savings with the mortgage and combine it with a cheque book", says Ken, who has enjoyed the occasional bequest. A £270 valuation fee is rebated by the lender and the arrangement fee - which was £175 but £299 on new loans - can be added to the mortgage. Ken and his wife, Joyce, pay £940 monthly on a £190,000 mortgage which will run for 10 years with Intelligent Finance. Contact: Financial Solutions 01274 855 682

On your plans, consider whether your aim is a cheaper monthly payment or a lower overall cost. Some prefer more flexibility, whilst others are looking for a way to pay off a mortgage earlier, possibly following an unexpected windfall. Alternatively, a remortgage may be a way to raise extra funds, such as for an extension.

Look carefully at your current loan before seeking alternatives. There may be redemption penalties if the mortgage is moved but are they worth paying for the interest saving?

Always ask for a redemption statement from your existing lender so you know exactly what will need to be borrowed to repay the former home loan.

There are attractive remortgage packages. Aware that the first time loan market is slow, many lenders are offering special deals to those who move mortgage.

This can be refunding the valuation fees or paying the legal costs. Some will pay the premiums to an insurance company to protect for accident, sickness or unemployment.

Mortgage brokers often say their clients are unrealistic about how long the process will take. Ask the lender at the outset how long it thinks the arrangements will take to complete and the range of fees. There may be a booking charge as well as an overall administration fee.

In making one's calculations, do not assume that base rates will fall further. Even though some analysts have predicted a reduction from the 4.5% level, minutes of the bank of England reveal that its governor, Mervyn King, and close deputies, all voted against a cut but were outnumbered.

Consumers can check for themselves the impact on their monthly repayments of moving to a lower rate by inputting as many scenarios as they wish with online mortgage calculators. Some providers, such as First Direct (the HSBC subsidiary) offer this tool on their website.

Consider the alternative forms of repayment, starting with a fixed interest where there is certainty on budgeting. There are many different time periods available.

Nationwide, the largest building society, has a two year fixed at 4.39 per cent for a £484 fee with complimentary legal and valuation services and accident, sickness and unemployment cover provided for three months.

Cheltenham and Gloucester's 4.39 per cent rate runs to September 2008 for £595 whilst Northern Rock's 4.89 per cent extends to October 2020 for £695.

If you are an enthusiast of really long term planning, Cheshire Building Society offers a 25 year loan at 4.99 per cent and a £395 fee.

All these fixed rate offers are on a maximum 90% loan to value, except Northern Rock which is 85%. It gives a £1000 rebate on taking the loan out but reclaims the sum if the mortgage is redeemed within 42 months.

Others prefer to know they are benefitting from base rate reductions by taking a discounted variable rate, particularly as the lowest initial rate is often offered in introductory days.

For no fee but discounted to 4.9 per cent for six months, Co-op Bank has just such an arrangement but requires a £350 penalty if redeemed within 3 years.

According to Moneyfacts, which constantly surveys the market, Saffron Walden and Leek United have discount loans for two and three years at 4.38 per cent and 4.39% per cent respectively.

If you do not want to make new arrangements so frequently, look at Nottingham's 4.62 per cent offer which is discounted for five years and costs £450.

The long term variable is designed for the length of the mortgage.

Up to 95% of a property's value can be borrowed on this basis with Saffron Walden and Coventry, costing £499 and £549 with rates of 4.70 per cent and 4.85 per cent. Neither has an early redemption penalty.

Capped loans can appeal where interest rates cannot rise but can fall.

Over three years, look at Derbyshire, which sets a 5.69 per cent cap to October 2008 for a £350 fee but currently charges 4.95 per cent.

Over a five years, 4.95 per cent is the cap with Marsden Building Society but a maximum 80% loan to value and a £345 fee.

With capped or discounted schemes, enquire how long the loan is tied to an SVR following any special arrangement. Moneyfacts recently found that almost half of mortgage borrowers were on SVR with an average eye-watering 6.59 per cent.

Consider to what extent your mortgage can be flexible. Increasingly consumers like the ability to make overpayments to help pay off their loan more quickly or indeed to make underpayments when money is tighter or they want to spend funds elsewhere.

Some providers encourage such arrangements, whilst others penalise such flexibility.

The offset mortgage is the ultimate in flexible loans. This is where a borrower's savings can reduce their mortgage. One 'offsets' the other. Instead of paying tax on interest earned with savings, the full benefit of any investment reduces the loan charges.

Some providers combine both mortgages and savings within one account, whilst others run such schemes in parallel.

First Direct anticipates that 25 per cent of all UK mortgages will be offset by next year with access 24 hours a day.

Finally, consider rolling up other outstanding debts - such as personal loans or credit card balances - into a new offset mortgage.