Banks use loyalty rates to lure clients to their mortgages

6 September 2010

Loyalty is not usually a word that springs to mind when it comes to high street banks and their customers.

As a nation we’ve become much better at shopping around. Customers rely on intermediaries, the internet and best buy tables in newspapers to look for mortgages, savings accounts, ISAs, credit cards and insurance products, rather than assuming their bank will offer the best terms for all their financial needs.

But banks want to change this. customers by offering better pricing on products than those for existing customers, they are adopting a different tack.

The word ’loyalty’ is suddenly everywhere, particularly when it comes to mortgages.

Loyalty rates are being offered by several banks. They are offering a discount on their mortgage range to current account customers who pay a certain amount into their account each month.

I suppose it makes sense, at least for the banks. Cross-selling has to be a good way of generating, and keeping, business.

Encouraging borrowers to have their salary paid every month into the same bank that provides their mortgage helps tie them in, enabling banks to pick up other bits of savings and insurance business as well.

If borrowers don’t tick the boxes on an application, the chances are they won’t get hat loyalty rate anyway

But it also gives banks much more information about customers, helping them to understand their financial capabilities.

Barclays is the latest high street bank to offer preferential mortgage rates to its current account customers.

From this month it is reducing fixed, tracker and offset rates by up to 0.54% points for its current account holders who have paid in at least £800 in each of the three months prior to making a mortgage application.

Such a discount isn’t to be sniffed at as it offers a two-year tracker starting at 2.79%.

Barclays has followed HSBC, NatWest, The Co-operative Bank, Santander and Halifax - which has that dreadful television commercial of two women in a radio station commenting on cheaper mortgage rates before one drops a mug of tea.

These lenders all offer cheaper mortgage rates to current account customers.

The terms are slightly different with Santander which requires at least £1,000 a month to be paid into the current account which has to be held for six months.

Customers can then qualify for a two-year fix at 3.09% with a £495 fee if they have a 30% deposit.

The rates aren’t bad but while such discounts will be welcomed by customers, it is more important than ever that they shop around for the right product.

There is no guarantee that they will be offered the best deal by their bank, loyalty rates or not.

Brokers still have an important role to play. Banks have behaved badly enough in the past for customers to know that they should check what else is available to them.

The fact remains that if borrowers don’t tick the boxes on a standard mortgage application, the chances are they won’t get that loyalty rate anyway.

So independent mortgage advice to ensure consumers aren’t paying over the odds and are getting the right product for their needs and circumstances remains as important as ever.