"You're so sharp you'll cut yourself" is a common response to people who show unsettling signs of initiative or intelligence. That unappreciative tone is creeping into the mortgage industry as lenders respond to an increasing number of borrowers who have wised up to the benefits of chasing the best home loan deals. Nationwide, the UK's largest building society, has ended all discounts for new mortgage customers, offering all borrowers the same variable-rate home loans.
Some smaller building societies have decided that certain discounted variable rates should not be available to people moving just their loan rather than their home. Meanwhile, Standard Life Bank is considering a plan that would see returning customers who seek a remortgage within two years or so being denied the upfront discount (currently 2 per cent for six months) that is one of the attractive features of their flexible home loans. "There is evidence from the credit card industry to suggest that providers are turning down customers who are taking advantage of all the upfront offers and then moving on," says Neil Ross, managing director of Standard Life Bank.
"I'm not saying we would turn people down - we would happily take them back at the standard variable rate (SVR). But why should we use funds on discounts that could be better applied to keeping the SVR down when the evidence suggests they'll only be with us for another year or so?" There are two, linked, reasons why lenders are seeking to re-balance their books and narrow the gap between new customers and existing borrowers.
The first is the rise of remortgaging. As a proportion of new lending, it has risen from a low of about 15 per cent in the second half of 1997 to around one-third of new lending in the first quarter of this year. This increase is not inevitable and the proportion may drop again if the most attractive deals disappear. But home owners' higher level of financial understanding, which fuelled it, looks like a permanent feature. "Once customers have wised up, they've wised up," says Patrick Bunton of mortgage brokers London & Country. "The days of unstinting loyalty to one financial organisation are over."
The second reason is the shrinking proportion of lenders' mortgage books that remain on the SVR instead of special deals and discounts. Figures for individual lenders vary, but Nationwide estimates that across the sector it has fallen from 60 per cent in 1994 to 40 per cent last year. This makes it harder to use the SVR customers unobtrusively to subsidise new borrowers. The result of all this is increasing emphasis on trying to keep existing borrowers sweet. Halifax, the UK's largest mortgage lender, has made a song and dance (literally) about its annual mortgage review programme. And customers who have not yet been contacted but who are on its SVR of 7 per cent can ask to move on to one of its transfer mortgages, which currently include a daily interest lower variable rate of 6.25 per cent.
At Abbey National, Mark Robinson, head of mortgage development, says the bank has an extensive programme of contact with people who are reaching the end of a discount period. "SVR is not a terrific positive in terms of benefits for customers," he acknowledges. Other retention moves offer incoming customers the promise that, when the special deal period comes to an end, their loan will revert to a rate that tracks the base rate rather than to an SVR set by the lender. Bristol & West is among lenders taking this approach, incorporating a tracker reversion guaranteed until the end of 2006 into its new home loans. But the change of emphasis does not mean serial remortgagers need despair or that existing borrowers can relax.
Good remortgage deals should still be available, though it may require more research to identify them. "Some lenders take the view that they like remortgage business because the proposition is more likely to go through, it is easier to process and they are dealing with people who have a track record with a loan of a similar size," says Ray Boulger of mortgage broker Charcol. As for existing mortgage holders, it still makes sense to be more than a grateful and passive recipient of whatever initiatives lenders undertake. "Most people on the SVR are simply throwing money away," Bolger says. He believes there are only a few sets of circumstances where sitting quietly on an SVR can make sense. Someone who is near the end of a small mortgage, for example, may find it is not worth the effort.
Borrowers whose circumstances have changed in a way a lender might view less favourably than before, for example someone who has recently become self-employed, might also find that chasing rates is not a profitable approach. In general, however, the overwhelming advice is that there are benefits in probing just how far your own lender is prepared to go to keep you. "When you get to the end of a deal period," says Bunton, "go back to your existing lender. They might match what another lender would offer you as a new customer."
Some smaller building societies have decided that certain discounted variable rates should not be available to people moving just their loan rather than their home. Meanwhile, Standard Life Bank is considering a plan that would see returning customers who seek a remortgage within two years or so being denied the upfront discount (currently 2 per cent for six months) that is one of the attractive features of their flexible home loans. "There is evidence from the credit card industry to suggest that providers are turning down customers who are taking advantage of all the upfront offers and then moving on," says Neil Ross, managing director of Standard Life Bank.
"I'm not saying we would turn people down - we would happily take them back at the standard variable rate (SVR). But why should we use funds on discounts that could be better applied to keeping the SVR down when the evidence suggests they'll only be with us for another year or so?" There are two, linked, reasons why lenders are seeking to re-balance their books and narrow the gap between new customers and existing borrowers.
The first is the rise of remortgaging. As a proportion of new lending, it has risen from a low of about 15 per cent in the second half of 1997 to around one-third of new lending in the first quarter of this year. This increase is not inevitable and the proportion may drop again if the most attractive deals disappear. But home owners' higher level of financial understanding, which fuelled it, looks like a permanent feature. "Once customers have wised up, they've wised up," says Patrick Bunton of mortgage brokers London & Country. "The days of unstinting loyalty to one financial organisation are over."
The second reason is the shrinking proportion of lenders' mortgage books that remain on the SVR instead of special deals and discounts. Figures for individual lenders vary, but Nationwide estimates that across the sector it has fallen from 60 per cent in 1994 to 40 per cent last year. This makes it harder to use the SVR customers unobtrusively to subsidise new borrowers. The result of all this is increasing emphasis on trying to keep existing borrowers sweet. Halifax, the UK's largest mortgage lender, has made a song and dance (literally) about its annual mortgage review programme. And customers who have not yet been contacted but who are on its SVR of 7 per cent can ask to move on to one of its transfer mortgages, which currently include a daily interest lower variable rate of 6.25 per cent.
At Abbey National, Mark Robinson, head of mortgage development, says the bank has an extensive programme of contact with people who are reaching the end of a discount period. "SVR is not a terrific positive in terms of benefits for customers," he acknowledges. Other retention moves offer incoming customers the promise that, when the special deal period comes to an end, their loan will revert to a rate that tracks the base rate rather than to an SVR set by the lender. Bristol & West is among lenders taking this approach, incorporating a tracker reversion guaranteed until the end of 2006 into its new home loans. But the change of emphasis does not mean serial remortgagers need despair or that existing borrowers can relax.
Good remortgage deals should still be available, though it may require more research to identify them. "Some lenders take the view that they like remortgage business because the proposition is more likely to go through, it is easier to process and they are dealing with people who have a track record with a loan of a similar size," says Ray Boulger of mortgage broker Charcol. As for existing mortgage holders, it still makes sense to be more than a grateful and passive recipient of whatever initiatives lenders undertake. "Most people on the SVR are simply throwing money away," Bolger says. He believes there are only a few sets of circumstances where sitting quietly on an SVR can make sense. Someone who is near the end of a small mortgage, for example, may find it is not worth the effort.
Borrowers whose circumstances have changed in a way a lender might view less favourably than before, for example someone who has recently become self-employed, might also find that chasing rates is not a profitable approach. In general, however, the overwhelming advice is that there are benefits in probing just how far your own lender is prepared to go to keep you. "When you get to the end of a deal period," says Bunton, "go back to your existing lender. They might match what another lender would offer you as a new customer."
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