Cheaper loans could follow Halifax's re-mortgage lead

Cheaper mortgages could be around the corner if lenders decide to follow Halifax's lead and let existing customers change mortgages within the company in a bid to stop them re-mortgaging with rival lenders.

Concerned about the number of customers it loses every year, the country's biggest mortgage lender hopes that by inviting them to move mortgage within the Halifax group without incurring any penalties, it can stem the losses.

Halifax's 100,000 standard variable rate (SVR) customers will be allowed to transfer to its flexible tracker mortgage without paying any early redemption fees or changing the life of the loan. Such a transfer would save ?400 a year on a ?60,000 repayment loan.

In a related move, the bank is also writing to a further 200,000 customers a month, outlining Halifax products which could save them money. And of the 1m customers contacted to date, it says around 10% have switched product.

The move comes just days after the council of mortgage lenders announced a significant rise in the level of re-mortgage activity in September. Re-mortgaging was up by almost 7% from ?2.9bn in August to an estimated ?3.1bn in September. Compared with September last year, the level of re-mortgaging was 35% higher.

A spokesperson for the council said the increase reflects intense competition in the mortgage market which could lead to cheaper mortgages from the outset: "The Halifax decision does suggest cheaper loans might be a sign of things to come, but it's still early days. Everything will depend on how the other lenders react. If they copy Halifax, then mortgages as a whole could become cheaper but, that being said, the market is already very competitive and profit margins are already squeezed to the limit".

The country's other top five lenders, however, were sceptical about Halifax's move, saying it only applied to a fraction of its 2.5m mortgage customers and would have a limited impact on the market as a whole.

Most said they have no intention of offering similar deals because whilst the lower rates may be attractive to Halifax customers, they are higher than some of their and other lender's existing rates.

The latest offer will see customers with SVR mortgages being offered rates of 7.10% for loans under ?60,000 and 6.99% for loans above ?60,000. But loans with rates of between 5% and 6% are readily available, if customers are willing to pay typical early redemption penalties of between 1% and 5% of the loan's value and arrange for new surveys and valuations on their property.

Halifax is hoping the hassle of moving loan will act as a deterrent, convincing customers to stay with them, but the CML findings suggest home owners don't mind the time and effort or the penalties if, in the long-run, they save money.

Nationwide said that as a building society it is always able to offer cheaper loans with lower charges and penalties and therefore, has no intention of following Halifax. Similarly, Woolwich said it was confident its deals were competitive and saw no reason to change.

But all lenders admitted the market was very competitive, with profit margins being squeezed to the limit. If the level of competition and re-mortgaging continues, they say, and starts causing their customers to defect, rates may well have to start coming down across the market.