With mortgage rates dropping daily in recent weeks, and likely to continue to do so after this week’s positive inflation data, brokers have warned borrowers that some banks will not alert them to a cheaper rate should one become available before they complete, something that could cost them hundreds or thousands of pounds over the term of their loan.
Andrew Montlake, managing director at London-based broker, Coreco, said in the current climate going direct can have a sting in the tail.
He said: “Whilst going direct to your bank may seem like an easy option, there can often be an expensive sting in the tail for borrowers.
“We recently had a situation where a client applying for a product transfer directly had not been told that, since the rate was secured, products are now available at almost 1% cheaper than originally applied for.
“Had they not decided to speak to a broker before completion, they would have paid much more than they needed to.
“Borrowers should remember that loyalty among banks to their clients is generally the stuff of fiction, and that the Mortgage Charter itself was something that most lenders were strong-armed into doing rather than it being their idea.
“In fact, the only people really looking out for borrowers interests’ are brokers whose very livelihood depends on it.”
Montlake’s views were shared by Michelle Lawson, director at Fareham-based independent mortgage broker, Lawson Financial: “The value of a mortgage broker has never been higher than now.
“Lenders do not, and will not, tell their direct customers that there is a better rate available to them than the one they have secured. Don’t think your lenders respect your loyalty as you are just an account number.
“I have saved my clients tens of thousands of pounds in recent months and weeks with rate drops. I have one customer who started at 6.3% and is now at 5.88% after four rate cuts.
“The latest cut is saving her £42 per month, which is £1,512 over the three years of her product, let alone the saving over the term.
“Yes, I charge a modest broker fee but my customers have saved more than their fee by the product changes I have done for them free of charge.
“If you haven’t spoken to, or taken advice from a broker, you are likely to doing yourself a financial disservice. With rates dropping almost daily, going direct is ironically seeing many consumers paying a premium.”
Rowan Frayling, managing director at Newbury-based broker, J Finance Ltd, agreed, and says he has saved one client over £18,000 by constantly reviewing rates.
He added: “With rates dropping so regularly, the value of advice from an independent adviser is proving ever more important.
“A bank will simply process your transaction and there ends their involvement.
“We have just reviewed a tranche of rates that have dropped recently and, in one example, will have saved the borrower just over £18,000 in the next five years.
“Had they gone direct to the bank, they would have missed out on that gigantic saving.”
Lee Gathercole, co-founder at Peterborough-based Rebus Financial Services, has also saved his clients’ money: “In the current climate, this is one of the biggest benefits of using a mortgage broker.
“Rates are changing all the time, and in most cases, borrowers don’t know about this, especially if they go direct to their bank.
“It was only yesterday I revisited three mortgage products that I had secured for my clients in August, and I saved all three of them a total of £13,245.
“If they don’t get these updates from their banks directly, they could be losing out on thousands.”
Jack Tutton, director at Fareham-based broker, SJ Mortgages, has also been saving clients from overpaying.
He said: “We recently dealt with someone who had secured a new 2-year fixed rate with their current lender at 6.24% ready for the end of the year, but heard rates were dropping and was referred to us.
“Having reviewed their mortgage, we have been able to secure a new rate of 5.07%. This reduction in the rate means a saving of over £3,500 over their new 2-year fixed rate.”
Emma Jones, managing director at Whenthebanksaysno.co.uk, said the way that some lenders fix rates once agreements are signed may leave them in breach of Consumer Duty rules: “The issue here is not just about the cost of going direct but that some lenders set rates in stone once agreements are signed, potentially up to four months before the new product begins.
“This approach doesn’t align with Consumer Duty in my mind. An adviser can change rates for you with most lenders, often at no additional cost, after you’ve been offered a product, but the regulator should take a look at those lenders who don’t allow this.”
Darryl Dhoffer, director at Bedford-based broker, The Mortgage Expert, said banks were focused on their bottom line.
He added: “I have been beating this drum for months with clients, who believe their existing lender has their interests at heart. That’s not true.
“Clients must review their entire mortgage with an independent adviser, and if remaining with an existing lender is the only option, an independent mortgage adviser will ensure the best rate is obtained and, if rates reduce, switch to a better deal before their current deal expires.
“People going direct won’t be informed by their lender of lower interest rates if they become available. The banks are focused on their bottom line, not their borrowers’ best interests.”
It’s a sentiment echoed by Gary Bush, director at the Potters Bar-based independent mortgage broker, MortgageShop.com: “The general public need to understand that banks and building societies don’t have their best interests at heart.
“They rarely get involved in offering financial advice and, when they do, it’s hardly ever truly impartial advice.
“Lenders only pay us for the transaction once but we see it as our client duty to ensure we do our utmost to assist them through these financial storms and ensure they benefit from constantly falling rates.”
Stephen Perkins, managing director at Norwich-based broker, Yellow Brick Mortgages, agreed: “The value of independent financial advice has never been higher.
“Every day our advisers are saving clients thousands of pounds by re-doing additional work on already agreed mortgages as rates continue to reduce.
“Those who apply directly to banks won’t receive that service and will likely pay thousands of pounds more over their product term. People think they’re saving money by going direct but with rates in a downward spiral, they are extremely exposed.”
Craig Fish, director at London-based broker, Lodestone Mortgages & Protection, said people need to get independent advice now more than ever.
He continued: “People often believe that they can save a couple of hundred pounds by going direct to their existing lender when their rate ends.
“This is wrong on so many levels, but trying to get a client to understand it, and more importantly, believe it, is very difficult.
“Going directly to your existing lender can be very costly in two ways. Firstly, you don’t know if you could get a better deal elsewhere, and secondly, and more importantly, if you do go direct to your lender and they subsequently reduce their rates, which most are doing at present, that lender will not tell you they have reduced their rates, meaning you are going to be paying a higher rate.
“This has the potential to cost you thousands over the term of your product. Clients should always get independent advice from brokers and that’s never been more important than now. It’s as simple as that.”
Gareth Davies, director at Southampton-based South Coast Mortgage Services, concluded: “We’ve seen it first-hand on countless occasions in recent weeks.
“One huge benefit of using a whole of market broker is the ability for them to see and review the ever-changing environment that we find ourselves in.
“Many lenders are constantly reducing their deals right now, and if you have signed up direct with your bank, it’s almost certain that they won’t get back in touch with you to advise you there are savings to be made compared to a few weeks back.
“Yesterday alone, with only one lender, we reduced the future payments for some clients by over £10,000 during the next couple of years. How much more money are the banks making by not telling you about this?”
