Mortgages. Carrots and Sticks.

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We have detected that mortgage lenders are increasingly turning to the well tried marketing technique of “carrot and stick” to attract borrowers and persuade them to remain loyal. (life insurance)

The technique involves offering a mouth-wateringly cheap initial rate of interest and then encouraging the borrower to stay on beyond the introductory period by imposing punitive penalties if the borrower redeems the mortgage within a set number of years. (mortgage interest rates)

Take the Portman Building Society for example. Its offering borrowers an interest rate of just 1.95% fixed for two years – but thereafter, you must stay with the Society for a further four years paying base rate plus 1.99%. This currently works out at 6.49%. If you want to move before the end of the sixth year there are swinging penalties ranging from 7% to 2% depending on when you make the move. This means that a borrower with a £125,000 repayment mortgage over 25 years would start off paying just £530 per month based on the current base rate. Then after the initial two year introductory offer, monthly payments rise to £854. Thats a rise of 62%.

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