Fix your mortgage at 2.95%!

Should you consider taking out a mortgage from your own bank, if the rate is low enough? Let's find out...

If you buy all your financial products from your own bank, there’s a pretty high chance you’ll end up with poor value for money. After all, loyalty is often completely disregarded in the financial services industry.

Having said that, existing customers are occasionally ‘rewarded’ with access to an exclusive product. A recent example is the new loyalty mortgage range from Barclays which offers current account holders the opportunity to apply for home loans with discounted rates.

This is the first time Barclays has offered mortgages with preferential rates which entitles customers to a discount of up to 0.54% off the standard rates on selected fixed rate, tracker and offset deals. Any Barclays current account customers are eligible including those with Premier, Additions and Graduate accounts.

To qualify for a loyalty mortgage, you’ll need to have been an existing Barclays current account customer and credited at least £800 in each of the last three months, at the time you apply for a mortgage.

The loyalty range includes a two year fixed rate mortgage at 2.95% for borrowers with 70% loan to value (which means they have a minimum of 30% equity in their home or an equivalent deposit.) This rate is 0.54% lower than the standard rate for the same type of deal.

Meanwhile, borrowers with 80% loan to value (i.e. with a minimum equity or deposit of 20%) qualify for a rate of 4.19% with a smaller discount of 0.19%.

Let’s take a look at how much you could save by choosing the loyalty two year fixed mortgage rate over the standard rate. The figures are based on various mortgage advances from £100,000 to £500,000 and a maximum of 70% loan to value:

Barclays loyalty mortgages versus the standard range

Source: Barclays

Taking a fairly typical mortgage advance of £135,000, your repayments would come down by more than £38 a month over the course of the two year fixed rate period. By the time the introductory rate had expired you would have saved more than £922.

The savings are even greater for larger mortgage advances. Someone with a £500,000 mortgage would save more than £3,400 - or over £142 a month - by taking advantage of the 0.54% loyalty discount.

Barclays loyalty mortgages versus the best buys

There’s no question that the loyalty rates are more competitive than Barclays standard rates, but how do they compare against the wider market? Let’s take a look at the top two year fixed rate mortgage with a maximum of 70% to 75% loan to value:

10 top two year fixed rate mortgages

Source: Moneyfacts

Clearly, the new loyalty rate from Barclays isn’t the lowest on the market, but it’s certainly one of the more competitive choices given the extortionate product fees some lenders think it’s acceptable to charge.

Take Principality BS for example. It offers the lowest two year fix of 2.24%, but the product fee charged for arranging the loan is astonishingly high at 3% of the mortgage advance. If you wanted to borrow £135,000, the fee alone would set you back a massive £4,050. This actually transforms the lowest rate deal into one of most costly of the selection with a true cost of £18,644 over two years.

It’s a similar story at Alliance & Leicester where you would have to shell out 2% of the mortgage loan, which makes the 2.99% deal the most expensive on the table. Meanwhile, The Mortgage Works charges the same extortionate product fee with an added booking fee of £149.

You should always look at true cost, which includes all the associated mortgage fees as well as the rate. You can find out more about calculating the figures yourself in The 2.6% mortgage trick. On the basis of true cost, the Barclays loyalty rate is measuring up very well at just over £17,000 in total with only Yorkshire BS (2.89%) and HSBC offering cheaper deals.

This time Barclays really is offering existing current account customers a worthwhile deal, but we shouldn’t draw too many conclusions from this. After all, this is just one isolated example. Other lenders also provide special loyalty mortgage products. Halifax, for example, offers current account customers a 0.2% discount off new mortgage rates as long as you pay in at least £1,000 into their account every month (or open an Ultimate Reward Current account at a cost of £12.50 per month). But to judge whether they really provide good value by true cost, you would need to compare them to the wider market in the same way.

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free  broker. Call 0800 804 4045 or email mortgages@lovemoney.com for more help.lovemoney.com

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.

More: 16 super low fixed rate mortgages | Pay nothing for a cracking mortgage deal