Quick fix will save you £370

By JO THORNHILL
Updated: 00:00 EST, 10 October 2005

HOMEOWNERS coming to the end of a cheap mortgage deal face a hefty bill if they fail to arrange a new loan promptly. Paying a standard variable rate while waiting for a new deal to come through typically costs £370 extra over three months.

According to leading brokers, the lender they choose could mean the difference between a short and simple remortgage or a drawn-out process with high interest costs.

A typical remortgage should take about 30 days to complete, but research shows that some lenders routinely take 40 days. Unforeseen problems can drag it out for longer.

Independent broker Purely Mortgages in central London found it took 40 days on average for Clydesdale Bank to complete a remortgage. Abbey was only slightly better at 38 days. But Alliance & Leicester and Halifax took only 29 days.

Ian Giles of Purely Mortgages says: 'It's not just a hassle if your mortgage takes a long time to be processed, it can also cost you money if your previous mortgage deal has ended. You will be paying over the odds for each day you are stuck on a lender's standard rate.'

Giles says that processing times have been so bad from some smaller regional building societies that Purely Mortgages will deal with them only in special circumstances.

He explains: 'Some societies would launch a market-leading rate, only to be swamped with applications and then be unable to cope.

'That's frustrating and potentially expensive for customers, particularly if it means a remortgage takes two or three months.'

Typical standard variable rates from High Street lenders are about 6.5 per cent compared with about 4.5 per cent for the best two-year fixed or discounted-rate deals. So a borrower with a £100,000 repayment mortgage over 25 years would pay £2,049 over three months at the standard variable rate, compared with only £1,680 on a deal at 4.5%.

That adds up to £370 and, according to broker Charcol, half a million homeowners every year pay this extra cost while they are stuck on standard rates between deals.

James Cotton, an adviser at independent broker London & Country Mortgagesin Bath, Somerset, says homeowners should be better prepared.

He says: 'The best time to think about a remortgage is two to three months before the end of a deal.

'Most mortgages can be booked three months in advance with some lenders allowing a six-month booking period. You simply set your completion date in the future so you never have to pay a standard rate.'

Andrew Bowles, 41, and his wife Victoria, 32, contacted London & Country a month before their one-year fixedrate deal with Norwich & Peterborough was due to end.

Andrew, an IT consultant from Bishop's Stortford, Hertfordshire, says he was keen not to pay N&P's variable rate, even for a day.

'Our broker recommended we switch to Alliance & Leicester and was confident our loan could be moved within a month,' he says.

'We applied for the new deal on August 9 and it was completed by the end of the month.'

Keeping your cheap deal on track

•• Act early. The sooner you start the remortgaging process, the easier it should be to complete, but check there won't be a redemption penalty to switch.

•• Keep paperwork in a file. That way, when your broker, existing lender or new lender calls, you will have everything to hand to keep the momentum going.

•• Use an independent broker. Not only can a broker help you find the best mortgage deal from the entire market, it should also be able to pull strings with lenders because of the large volume of business it handles for them. This could be beneficial if there are any delays or problems.

•• Regular calls to your broker or lender will keep the ball rolling, but be careful not to badger.

•• Write down names at all times, then you can ask for the same people each time. Be wary of lenders or brokers who will not provide names.