Prospective borrowers might assume that loyalty to their bank or building society should result in rewards when it comes to mortgage pricing. After all, loyal customers are less risky, more predictable and often have a full suite of products with the same provider. The question is, does this translate into genuinely better mortgage rates or preferential treatment from a mortgage lender? This article explores the concept of mortgage loyalty and whether sticking with the same provider leads to savings on interest rates.
What does mortgage loyalty mean?
In the context of home finance, mortgage loyalty refers to the idea that a borrower who holds multiple products with a single bank, such as a current account, savings, credit cards and an existing mortgage, might be rewarded by that institution when the time comes to refix the mortgage rate or extend the mortgage or take out another mortgage.
The assumption is that retaining a customer across products offers long-term value to the mortgage lender and that this value might be passed back in the form of lower interest rates or preferential pricing. Many borrowers ask their advisers or lenders: “Will staying loyal actually improve my mortgage rate?” The short answer is that there is no straightforward guarantee, and the answer depends on how lenders structure their pricing.
Do loyal customers get better mortgage rates?
Despite the intuitive appeal of loyalty, having multiple products with one provider does not automatically secure better mortgage rates. Recent market research indicates that, while some lenders advertise special deals for existing customers, the overall evidence indicates loyalty does not consistently result in lower mortgage pricing. In practice, lenders price mortgage products based on risk, market conditions, credit profile and competitive market forces.
For instance, a borrower who has a current account and savings with a bank may not see meaningful savings on mortgage interest simply because of that relationship. In fact, some of the most competitive mortgage deals on the market are offered to new customers as a way of winning market share rather than as a reward for loyalty.
While some lenders provide small discounts to existing customers, the most important factor in quoting a mortgage rate is the risk profile and affordability of the borrower, rather than loyalty. This means that borrower income, deposit size and credit history are stronger drivers of pricing than holding other products with the same bank. Lenders often segment mortgage pricing based on loan-to-value ratios, applicant credit profiles and financial market factors. Loyalty discounts, if they exist, tend to be secondary and marginal, rather than primary determinants of the mortgage rates offered.
Examples of loyalty perks that may exist
Although loyalty does not guarantee better pricing, some lenders do offer small incentives or perks for customers with existing relationships. For example:
- Certain high-street banks may have products that are available exclusively for existing customers, such as refix deals or reduced fees.
- Some lenders may take other products into account when managing risk profiles or when deciding on product availability.
However, it is important to distinguish between marketing incentives and meaningful pricing advantages. Perks such as discounted arrangement fees, fee waivers or access to specific products do not always translate into significantly lower mortgage rates. In many cases, borrowers are better served by comparing the broader market rather than relying on loyalty perks from a single lender.
Why loyalty alone is not a major pricing factor
There are several reasons why staying with an existing lender does not automatically mean better pricing on mortgage products:
1. Lenders base price on risk and competition
A lender’s primary focus is to manage risk and remain competitive in an ever-changing market. Variable and fixed mortgage rates are influenced by factors such as the Bank of England’s base rate, wholesale funding costs, borrower creditworthiness, and wider macroeconomic and financial market conditions.
2. New customer deals drive competition
Most lenders allocate their most competitive deals to attract new business. This means that the best-advertised mortgage rates may often be available to borrowers who are switching lenders rather than staying loyal. It is not uncommon to find that borrowers can secure lower interest rates by moving to another provider. Loyalty with an existing lender, therefore, might not offer the same pricing power.
3. Cross-selling incentives differ from pricing incentives
Lenders may promote cross-selling, encouraging customers to take multiple products, but cross-selling incentives are not the same as loyalty rewards on mortgages. For example, fee discounts or bundled product offers might be available, but these do not always reduce the interest rate component of a mortgage. Borrowers should scrutinise the fine print to determine if any so-called loyalty benefit genuinely reduces the cost of borrowing compared to what is available elsewhere in the market.
When loyalty may offer value
Although loyalty is not a reliable route to the lowest mortgage rates, there are times when staying with your existing lender might make sense.
1. Simplified process and continuity
For some borrowers, particularly those who value convenience, staying with a current lender may offer a smoother process. The lender may already hold your financial history, documentation and previous applications, potentially reducing administrative friction. This does not necessarily mean lower rates, but it can make the refix on an existing mortgage or obtaining a new mortgage more convenient.
2. Fee concessions or product availability
Occasionally, loyal customers may benefit from lower arrangement fees or access to certain products not widely marketed. These elements can reduce upfront costs, even if the ongoing mortgage rate is not significantly different from what is available elsewhere. Reviewing both fees and interest rates is essential to understand total cost.
3. Products for existing customers
Some lenders have products that are technically reserved for existing customers or those with multiple products. In these narrow cases, the available mortgage rates may be competitive within the context of that lender’s pricing. However, this should not deter borrowers from shopping around. Even if a product is exclusive, it may still be priced less favourably than comparable deals from other lenders.
How to make loyalty work for you
If you are considering whether to stay loyal to your existing lender or explore the wider market, the following approach may help:
1. Compare market-wide mortgage rates
Do not limit your search to your existing lender’s offerings. Use comparison tools, mortgage advisors and rate tables to understand what is available across the entire market. This ensures you are aware of the most competitive mortgage rates for your profile.
2. Factor in fees and total cost
Mortgage pricing does not end with interest rates. Many products come with arrangement fees, valuation fees, early repayment charges and other ancillary costs. An exclusive loyalty perk that waives a fee may or may not offset a higher interest rate, so calculate the total cost.
3. Use a mortgage broker
A mortgage broker can assess both your loyalty options and deals from other lenders, including specialised products not visible in public rate tables. Brokers can sometimes negotiate on your behalf and find niche products that suit your profile better.
4. Do not assume loyalty equals reward
Always treat your mortgage as a separate financial product that must stand up to market scrutiny. Loyalty is a relationship consideration, but interest rates are pricing decisions are based on risk, funding costs and competitive strategy.
Conclusion
The idea that loyalty leads to better mortgage rates is appealing. However, while some lenders may offer small incentives or perks to existing customers, the most important determinants of mortgage pricing remain risk, financial market conditions, including funding costs, and competition among lenders. Borrowers should not rely on loyalty as a route to lower rates. Instead, comparing rate tables across the market and considering the full cost of borrowing, including fees, is important.
FAQs
Q. Do loyal customers get better mortgage rates?
A. Not necessarily. While some lenders may have perks for existing customers, mortgage rates are primarily based on risk assessment, cost of funding and competitive pricing, not customer loyalty.
Q. Can staying with my current mortgage lender save me money?
A. It can save you time or upfront fees in some cases, but it does not guarantee better interest rates compared to the wider market.
Q. Should I always switch lenders to find better rates?
A. Not always. Switching can lead to lower mortgage rates in some cases, but borrowers should compare fees and total costs across lenders, including their current bank, before deciding.
Q. Do lenders offer exclusive products to loyal customers?
A. Some lenders advertise products aimed at existing customers, but these may not always offer the most competitive rates.
Q. Are loyalty perks the same as lower interest rates?
A. No. Loyalty perks, such as fee discounts, are not the same as reductions in mortgage rates and should be evaluated separately.
Q. Will my credit score affect the rate I am offered?
A. Yes, your credit profile has a significant influence on the mortgage rate a lender is willing to offer.
Q. Can a mortgage broker help with rate comparison?
A. Yes, a mortgage broker can compare multiple lenders’ pricing and potentially help identify better mortgage rates than those offered by your current lender.
Q. Do all UK lenders reward loyalty?
A. No, not all lenders offer loyalty perks, and even when they do, this may not result in lower interest rates.
Q. Is convenience a benefit of lender loyalty?
A. Yes, remaining with your current lender may offer convenience, although this does not guarantee better rates.
Q. Should I look at the total cost of borrowing?
A. Yes, interest rates are only one part of the equation. Fees and other charges also affect the total cost of a mortgage.
Additional sources:
https://www.tembomoney.com/learn/does-loyalty-pay-when-it-comes-to-mortgage-rates
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