£5bn mortgage scam hits buyers

MILLIONS of homeowners are being ripped off by up to £5bn a year because they are refused access to cheap mortgages.

Long-term borrowers with leading banks and building societies are effectively being over-charged by thousands of pounds.

The money raised from these customers is being used to subsidise cheap loans that are only available to new borrowers.

The scandal was condemned yesterday by the Consumers' Association and the Nationwide Building Society, which called for a fair deal for all mortgagees.

Nationwide executive director Stuart Bernau said: 'Why should loyal mortgage customers subsidise new borrowers? It's frustrating for consumers to see a product on the shelf that they just can't buy.

'With interest rates continuing to rise, it is even more important for mortgage borrowers, especially those who have been loyal to their existing lender, to receive fair value.

'We call on other lenders to follow our lead and make their full range of mortgages available to all. If they don't, it is the consumer who loses.'

The rip-off was first highlighted seven months ago in a Government review of the mortgage market conducted by David Miles, the Professor of Finance at Imperial College, London.

He suggested it could be ended if lenders were forced to make all of their home loans available to all customers, both new and existing. However, Chancellor Gordon Brown has failed to act on the report.

About four million homeowners - 35% of all mortgagees - are on the standard variable rate home loan and pay about 6.5% in interest, 1.5% to 2% more than the best deals available.

Their bank or building society either bans them from switching mortgages or charges hefty fees to do so. The difference in repayments can add up to thousands of pounds every year, and tens of thousands over the entire mortgage.

A homeowner with a £100,000 interest-only mortgage pays £541.66 a month at 6.5%. That equates to £6,499 a year. At 4% on a short-term special deal, repayments would be cut to £337.50 a month - a saving of £2,499 a year.

A borrower who constantly switched to the best short-term deals could save £52,000 after fees over 25 years, the Nationwide said.

The Halifax, the Abbey and RBS NatWest are among the lenders that refuse existing customers access to some of the cheapest loans.

Consumers' Association money expert, Cara Whitby, said: 'The reality is that mortgage lenders are not doing themselves any good by offering a poor deal to loyal customers because that will only end up driving them away.'

The Abbey defended its restricted access policy, saying: 'Our existing customers will have benefited at some point from one of these special deals in the past.'

Halifax said it has moved one million customers on to cheaper home loans in the last few years, although they were not as good as those available to first-time buyers.

The Government has asked the Financial Services Authority to conduct a review of the Miles report.

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