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The return to loyalty

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Traditionally mortgage lenders have been accused of favouring new customers and taking the loyalty of their existing customer base for granted. Over the past few years we have seen plenty of the best deals being advertised as 'for brand new customers only' and this line being used as a gag in Nationwide adverts.

New borrowers now seen as bigger risk

But, the credit crunch means the tide has turned and as banks and building societies become more fussy about who they lend to, many have started to reserve their best deals for established customers only. This practise harks back to the olden days when you had to have a relationship with a lender to stand a chance of getting a mortgage with it.

The traditional local approch to lending is also starting to see a comeback. Holmesdale, Newbury and Tipton & Cosely building societies have all restricted lending to their 'local area' in recent weeks. In addition, Melton Mowbray will now only accept intermediary applications within a 30-mile radius and direct applications within a 50-mile radius; also Mansfield building society is only doing direct business rather than dealing with brokers. "Traditionally, local building societies have attracted the majority of their business from the local area," says Denise Harvey, mortgage analyst from Moneyfacts. "In order to maintain presence and competitiveness in that area, they are having to close their doors to those from outside the region who are unable to secure a mortgage from the larger lenders."

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Shutting doors and shifting criteria

Brand new customers only? No!

Other small building societies have withdrawn from the market altogether; Bath, Earl Shilton and Monmouthshire building societies and Shepshed Bank have all withdrawn their entire ranges while Coventry, Manchester, Newcastle and National Counties building societies have all restricted their criteria. "These changes show that no one has escaped the effects of the credit crunch this time," says Ms Harvey. "Whether you are a prospective first-time buyer or an existing borrower coming off a deal, there will certainly be less choice out there, especially from the smaller building societies."

Meanwhile First Direct withdrew its mortgage range to new customers from the beginning of April. It said that it had decided to withdraw its range from people who were not already customers until it had cleared the backlog, rather than raise its rates in a bid to discourage borrowers.

This week Nationwide announced that it is rewarding loyalty by offering a fee-free five-year fixed rate deal, available from 6.15%, to existing Nationwide borrowers who are switching deals.

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02 May 2008 © Moneyextra.com

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