For many consumers, if you are looking for a market-leading mortgage or re-mortgage deal towards the latter half of 2013, then you may be expected to change your current account in order to secure it.
Across the UK’s mortgage market, more and more lenders are now holding back their very best mortgage deals for their own current account holders. This enables a lender to keep a much closer tab on that specific customer’s finances, and also offers the opportunity for the same lender to try and cross-sell everything from investment plans to insurance.
Some lenders try to tempt new consumers through the door with exclusive rates or lower product fees for new current account customers, whilst some others keep that same door firmly shut if you happen to hold your current account with a competitor.
Lloyds Bank, for example, will reduce a percentage of 0.2 off most of its mortgage rates if you happen to hold a current account with them. This could work out as a saving of around £15 a month, or £180 a year on a typical repayment loan of £125,000. On top of that, if the banks existing current account holders re-mortgage to it from a different lender, then the customer could collect up to £500 by means of having their first month;s mortgage interest refunded.
HSBC are also tempting consumers and getting in on the act. They charge a £999 application fee for its 5-year fixes and life-of-loan trackers, with the rates from 2.99 per cent and 2.39 per cent respectively. However, with an HSBC current account the application fee falls to £499, saving £500.
The Barclays/Woolwich group also mirror this, reducing the application fee for its 2.99 per cent five-year fix to customers by £500.
Others include Brittannia and The Co-Operative Bank, albeit slightly less generous to the consumer. Whether you are a new or existing current account holder, you can expect around £100 off the standard £999 mortgage fees.
Halifax offer a £150 cashback sum if you apply for a current account at the same time as a mortgage with them.
One lender offering a wider range of deals to new and existing current account holders is Nationwide Building Society. If you move your current account over the mutual lender then you can apply for four-year fixes rather than two, three and five-year deals. If you hold a FlexAccount (current account) with them, then you could receive an exclusive five-year tracker at 2.09 per cent over the base rate with a low fee of only £99.
Finally, Santander are getting in on the act and winning current account business by offering consumers 1 per cent cashback if you pay your mortgage bill out of one of their current accounts. This could be up to the value of £100 per month or £1200 per year.
Not all lenders are so keen to offer an easy way in though. Take for example first direct, who feature heavily in a wide range of best buy tables – particularly for their two and five-year fixes. However, you cannot get either of those products unless you take out a first direct current account at the same time. The lender simply will not let you pay your mortgage from another lender’s account. They will sweeten the deal though, with a £100 cash joining incentive for new customers.
Metro Bank take a similarly robust stance, making it’s current account a compulsory feature for any consumers wanting any of its no-strings-attached fixes or trackers.
So what should you do?
It can make a lot of sense for some consumers to change their current account to accomodate their mortgage. More than ever before, there is a huge gap between the worst products on the market that are offering high fees, bad service and low interest rates, and the better alternatives that really could have the potential to make you financially better off.
With the best accounts, you could earn up to 5 per cent before tax in interest on credit balances – while with the worst accounts you would not earn a penny. Looking at information from consumer group Which? would suggest that accounts from Nationwide, LLoyds, Santander and Coventry Building Society top most polls. The Personal Finance Awards (in association with What Mortgage and The Money Pages) also looks at consumer opinion surrounding current accounts – the results of which can be found here.
If you are looking for a better mortgage deal, and a better current account in the process, then it could well make sense to bring all of your finances together under the same lender – but as with any major financial decision – it’s important to check the small print first!
