Experts slam Northern Rock and Lloyds TSB tie-up

5 June 2008

Northern Rock mortgage borrowers whose deals are due to end over the next three years could be offered a new fee-free mortgage from Lloyds TSB.

The two banks have signed a three-year commercial deal which will see selected Northern Rock customers sent letters and brochures from Lloyds TSB when their deals are coming to an end. These customers will then have the option of switching to a mortgage from Lloyds TSB.

If they do choose to switch, then Lloyds TSB will waive the legal and valuation fees and the standard application fee. However, those borrowers who took out a Northern Rock mortgage prior to July 2007 will have to pay an exit fee.

Northern Rock is likely to be paid commission for referring customers on, but the lender refused to discuss the details of the commercial agreement.

The move has caused outrage among some commentators who are concerned that Northern Rock customers could get a better deal by using a whole of market mortgage broker rather than simply switching to Lloyds TSB.

“Lloyds TSB is generally not a competitive player in the mortgage market,” says Moneyfacts mortgage expert Denise Harvey. “Its current two-year fixed deal is way behind the market leaders'.”

And David Hollingworth, from mortgage broker London & Country, says not all customers will be able to secure a new mortgage with Lloyds TSB.

“The deal is clearly aimed at lower risk borrowers, but it won’t be a cure-all for everyone with Northern Rock, such as those with a small amount of equity in their home,” he adds. “For anyone considering a mortgage with Lloyds TSB, I would urge them to take the opportunity to see what is out there and make sure the deal is right for them before signing on the dotted line.”

Borrowers who choose not to switch, or those not chosen by Lloyds TSB, can either stay with Northern Rock on a standard variable rate or find an alternative deal using a broker or through their own research.

A spokesman for Northern Rock said that all factors were looked at when arranging the deal with Lloyds TSB, including the latter’s mortgage rates. He adds: “Borrowers will be advised of their right to go and see a broker or do their own research. This is just another option.”

The Lloyds TSB products that will be offered to Northern Rock customers have not yet been unveiled, but are expected to be announced at some point in July when the deal kicks off.

Danny Lovey, a mortgage broker with The Mortgage Practitioner, says: “Is this a better deal for Northern Rock than it is for its customers?

"My advice to people would be not to take this deal at face value, make sure you see what else is out there by using a broker with access to the whole of the market to ensure you aren’t being stitched up.”

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