The mortgage lending industry is highly competitive. Lenders compete aggressively with one another by devising ever more novel mortgage products which, when it comes down to it, are really a repackage of an existing product.

So, what does the industry do? They compete for your business on price – in other words their interest rate. And as long as lenders use price as the main weapon in their marketing campaigns, price led promotion will encourage re-mortgaging to chase cheaper offers.

Having created price led competition, the mortgage lenders look in horror at the obvious repercussions. They have adopted a somewhat insulting name for customers who switch lenders to chase lower interest rates – they call them “Rate Tarts”. We have a much more apt description – Smart Shoppers! After all, why should people be subject to implied criticism for simply ensuring they are consistently paying the lowest price? After all a pound from one mortgage provider as effective as a pound from another!

In an attempt to discourage switching, some lenders have raised their up-front charges whilst the more enlightened have improved their client retention programmes. In such a cut-throat market, accolades must be awarded for the best customer retention programmes but increasing front end charges will simply have the effect of diverting prospective customers to their competitors. The tactic would only work if all the mortgage companies got together to agree a common policy on up-front charges. But if that happened, their action would undoubtedly be referred to The Office of Fair Trading. So seems that some lenders still have to learn that carrots beat sticks!

A case in point is Birmingham Midshires. At the moment Birmingham Midshires offer a two year fixed mortgage deal at 3.89%. 3.89% sounds a bargain wait till you read the small print – they’ve jacked up the arrangement fee to a giant £1,499! If, on a £100,000 mortgage, you amortise this arrangement fee over two years at £749.50 per year, it’s equal to an extra 0.75% on the headline interest rate.

So, if you think it might be worthwhile to re-mortgage, do some homework. Start by working out the costs of switching your mortgage. Remember to include absolutely everything. Include the legal fees to change the mortgage (usually around £350 on a £100,000 mortgage), the arrangement fee (typically £500), the valuation fee (typically £250 for a £100,000 mortgage), possibly a booking fee (£50?), and check whether you’re subject to any early repayment penalties from your existing lender. If so add them in too.

Now get on the old dog and bone to your existing lender.

Tell them know that you are considering moving for a cheaper mortgage. Unless you put them under pressure, your lender is likely to work on the basis that, provided they offer you reasonably attractive deal, you’ll be happy to sit tight and avoid the cost, time and trouble of re-mortgaging. So shake them up. Make them compete. If your current mortgage lender simply offers you their normal variable rate they don’t deserve your business!

Armed with all this information you can then accurately assess whether you’ll save money by re-mortgaging. If savings are to be made by switching, go ahead.

Call them Rate Tarts if you will, but guess who’ll be all the richer for it! Re-mortgagors are just playing the market by it’s own rules!