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As rates drop daily, brokers warn consumers of "paying a premium" by going direct

ended 16. November 2023

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 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: “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: “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 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: "We recently dealt with someone who had secured a new two-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 two-year fixed rate.”

Darryl Dhoffer, director at Bedford-based broker, The Mortgage Expert, said banks were focused on their bottom line: "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: “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?”

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17 responses from the Newspage community

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Editor
Andrew Montlake
Managing Director at Coreco
Whilst going direct to your bank may seem like an easy option, there can often be an expensive sting in the tail for borrowers. Apart from the fact you are often not getting any advice, you may also be better off with a cheaper product elsewhere or benefit from changing the term of the loan, for example. 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.
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Editor
Darryl Dhoffer
Founder at The Mortgage Geezer
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.
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Editor
Michelle Lawson
Director at 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 be doing yourselves a financial disservice. With rates dropping almost daily, going direct is ironically seeing many consumers pay a premium.
Star Quote
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Rowan Frayling
Managing Director at J Finance
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 missed out on that gigantic saving.
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Editor
Emma Jones
Managing Director at Whenthebanksaysno.co.uk
The issue might not be entirely about the cost of going direct, since some lenders fix the rate once agreements are signed, potentially up to four months before the rate's end date. Considering that consumer duty is currently a major concern for many advisers, this approach likely doesn't align with it. An adviser can change rates for you with most lenders, often at no additional cost, after you've been offered a product.
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Editor
Stephen Perkins
Managing Director at Yellow Brick Mortgages
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. Often this can be just switching rate with the lender who has already issued an offer but sometimes a whole new application with a different lender suddenly becomes massively beneficial. 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.
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Editor
Craig Fish
Director at Lodestone Mortgages
People often believe that they can save a couple of hundred pounds by going directly 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 directly 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.
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Editor
Jack Tutton
Director at SJ Mortgages
Educating people around this point has been at the forefront of our service ever since the mini-Budget last year. We have dealt with several customers who had secured a new product with their lender only to hear rates are going down and approach us to see what options they have before their new deal starts. We recently dealt with someone who had secured a new two-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 two-year fixed rate.
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Editor
Rohit Kohli
Director at The Mortgage Stop
There is a clear difference in service between people going directly to lenders versus going through a mortgage adviser. Once we have secured an offer and all the way through to completion, it is in our interest to make sure our clients are aware of any rate changes that their lender makes, whether it's a purchase or remortgage. We proactively monitor for reductions and once the client has confirmed they are happy for us to switch their product, we proceed. We know of countless examples where clients have gone direct only to realise too late they could have switched to a better rate and saved hundreds, if not thousands, over the term of their fixed period.
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Editor
Justin Moy
Managing Director at EHF Mortgages
Product Transfers sound like an easy option but are inherently the same work for a broker as a remortgage in terms of advice, research and overall management. Lenders offering non-advised and reactive Product Transfers flies in the face of Consumer Duty ideals, compared to a proactive and advised service from mortgage brokers. As brokers we have the ability to react positively, saving our clients £0000's, and are well-informed about the market conditions. Allowing banks to interfere and try to move clients from advised to non-advised is a dangerous precedent.
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Elliott Culley
Director at Switch Mortgage Finance
The majority of lenders do not proactively let clients know of better rates. A broker will always do this. Not only does it save money, but it also means each mortgage payment pays off more of the mortgage balance due to the lower interest charged. This could save you thousands of pounds. In fact, I have recently saved one client £3,280 over the next two years.
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Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
It is no wonder that a whole of market broker will be able to get you a better and more competitive product than going directly to the bank you opened a current account with, in high school. This should come as no surprise as whole of market brokers are trained and have a complete visibility into the market rather than an incentive to push a particular product to meet sales targets. I would strongly recommend anyone who is currently looking for a mortgage to speak to a broker. And these brokers come in all shapes and sizes, so if you want, you can find someone that doesn't charge a separate fee, so effectively there's no additional cost to you.
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Steven Hargreaves
Mortgage and Protection Adviser at The Mortgage Co
Using a broker has never been more important. A lender will never go back to a client who has already secured a mortgage with that lender, even when rates have dropped a number of times leaving the client high and dry on a more expensive rate. We contact our clients as soon as the rate drops to ensure they are always on the cheapest rate that the lender offers.
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Lee Gathercole
Co-Founder at Rebus Financial Services
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.
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Gary Bush
Financial Adviser at 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. This issue of clients contacting their lenders directly to gain a new rate is fine if the account holder understands that they won't offer a potential tweak to their transaction should subsequently lower rates be made available before the new deal takes effect. In the past few months, we have had some product transfer clients for who we have nudged the rate downwards, or cancelled and delayed taking an action where we can see that the trajectory of rates is going to benefit the client six times. 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..
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
Going direct to a lender might look attractive on the surface, but it offers borrowers a very limited choice in a rapidly changing market. The advantage of a broker is the scope, time and impartiality they offer to get you the best deal and the transparency to demonstrate why that deal is right for your personal circumstances.
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Gareth Davies
Director at South Coast Mortgage Services
We've seen it first-hand on countless occasions in recent weeks. Amidst the panic of rising rates, going straight back to your bank may have been the path of least resistance, but this could cost the client dearly.
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?