Personal Finance: Forget loyalty, shop around

LOYALTY is over-rated when it comes to mortgages. There are now so many offers in the home-loan market that it pays to shop around. If you are paying a standard mortgage rate and have a house worth more than the outstanding loan, check whether you are getting the best deal.

Mortgage lenders say up to half their business involves people remortgaging their houses. That includes those who want to increase their loan to pay for home improvements as well as borrowers who are changing lenders because they want a cheaper deal.

Some lenders have been unwilling to offer better deals to existing customers in the hope that the borrowers will be too apathetic to move their loan elsewhere. That seems to be changing - earlier this year Halifax and Abbey National, the two largest home-loan companies, extended their range of remortgages after a lot of business moved to competitors.

If you pick the right lender it will offer you a more competitive interest rate; it may even pay most of the costs of transferring the mortgage over to its offices. A good example of this kind of package comes from the Bank of Scotland's Mortgage Direct, a telephone-only mortgage service. For anyone who wants to borrow up to 85 per cent of the value of his or her house it offers a variable interest rate of 8.24 per cent. There is no arrangement fee to pay, no mortgage indemnity fee and any valuation fee is refunded when the mortgage is completed.

John Charcol, mortgage advisers, says many of those moving lenders are changing from standard variable interest-rate loans to fixed and capped rate special offers.

Anyone thinking of remortgaging is spoilt for choice, but do watch out for redemption penalties. Many lenders show no signs of removing penalties for those who accept one of their special mortgage offers and then later on want to move mortgage lender. The Nationwide and the Portman building societies are among the lenders that offer special deals without forcing customers to pay standard variable rates when the deal finishes.

Contact: Bank of Scotland Mortgage Direct, 0800 810810.