As we enter the first week of spring, it’s one of those times of year that many people will look at renovating or sprucing up their properties, consider moving or merely reviewing their financial situation to see if their bank is still the best option for them. The banks are also aware of this and I have had a couple of enquiries from clients recently, who have either seen advertising or been contacted by a bank directly about changing their accounts and borrowing to a new lender. Often these invitations are accompanied by cash enticements to “encourage” a move, but what are the real plusses and minuses for changing bank and how do you know if the change is going to put you in any better position?
One of the questions that I was asked was, “What would be the main reason for moving banks?” The answer in one word would be dissatisfaction. With comparable interest rates and products being offered by most lenders, the motivation for moving comes down to a couple of key reasons. Will I be better off financially moving to another bank, has my current lender done something to annoy me so much that I don’t want to deal with them anymore or will a new bank offer me something that my existing lender can’t or won’t? Over the past couple of months I have been able to help people who have fitted into each of these criteria, and worked with them so that they have been able to proceed with their plans.
So, the advantages of moving to a new lender would be gained by obtaining a more suitable, cost-effective banking product and receiving a better customer experience. Often, any expenses to change banks such as solicitor’s costs and loan break fees will be covered by the cash contribution being offered by the new lender. However, before you start thinking that jumping from one bank to another could be a quick way to make some extra money, you should be aware of a couple of things. Firstly, most banks will require you to sign a deed of acknowledgement to say that you will maintain your new banking relationship for at least 2 or 3 years with a condition that you may be required to repay the cash contribution should you change within that time period.
Secondly, if your credit report starts resembling a who’s who of banks, then any potential lenders in the future may become wary of your transient relationship nature which may be reflected in a lack of willingness on their part to offer cash incentives or interest rate discounts to the level that we would expect to be able to negotiate ordinarily.
The disadvantages of applying to move to a new bank are quite simple. Dependent on your current borrowing structure, there may be extra costs to break your existing loans, and it is good to talk to an adviser who will be able to obtain those costs before you make your final decision. There may also be other expenses, such as solicitor’s fees to discharge and re-register a new mortgage. These charges can be even more significant if ownership of the property is in trusts or companies. Once again your adviser should be able to factor those costs into the advice process to make sure that the cost to change is not going to be detrimental to your financial position. You may also require a new registered valuation on your property to determine its security value, but a loan pre-approval from the prospective bank should be able to be obtained before you have to pay-out for a report to be done. The last disadvantage and often a reason that people choose to stay with a bank that they may not be completely happy with, is the hassle of having to update automatic payments, direct debits or regular payments to or from their existing account. My experience however is that new bank staff can make the transition easy for you and will in most cases help you to set up new accounts which can mirror your existing transactions.
In the first instance, a conversation with a registered mortgage adviser who has access to a number of lenders products will determine whether you are in a position where a move to a different bank will be advantageous, and when it is, will be able to guide you through the application process with the minimum of stress.
