Can you cushion the blow when the cheap loan leaves home?
Many borrowers face soaring repayments as fixed deals come to an end. Laura Howard looks at their options
Sunday 17 February 2008
The latest cut in interest rates will not be enough to stave off the payment shock that awaits the estimated 1.8 million borrowers coming off cheap fixed-rate mortgages this year.
The very best in today's market is Yorkshire building society's two-year deal priced at 5.09 per cent interest with a £995 fee, according to financial analyst Moneyfacts. But this still doesn't compare well with Portman's equivalent deal two years ago: 4.3 per cent with a £499 fee. So even a homeowner who has bagged both these fixes will be £90.61 a month out of pocket on a £200,000 repayment mortgage.
And the hurdles don't end there. In the new, tighter lending landscape, access to providers with the best deals has become more restricted, says Melanie Bien, director at mortgage broker Savills Private Finance. "The credit crunch is making it harder to get funding, particularly for those with blips on their credit histories. It may be the case you can't remortgage to another lender anyway."
But sticking with your current provider after your cheap home loan has come to an end is itself a case of hit and miss, although many borrowers will be better off now than they used to be. In the past, they would have simply been transferred to their lender's expensive standard variable rate (SVR), currently averaging 7.41 per cent, Moneyfacts reports. In the past few years, however, lenders including the Halifax, Abbey and Nationwide have introduced "retention rates" to persuade customers to stay.
Andrew Montlake, a partner at broker Cobalt Capital, says: "Lenders can be pretty guarded about these rates as what they really come down to depends on how much a lender wants to retain that borrower's business. But typically, they are priced between 0.3 and 0.5 per cent higher than those mortgage rates available to new customers."
For example, according to research from Savills Private Finance, customers new to the Halifax can net a two-year fix at 5.67 per cent, while existing borrowers would have to pay 5.74 per cent. There is also a higher arrangement fee for existing customers switching to a new fix – £1,499 compared with £999 – and they will have to fork out for legal and valuation fees, from which new borrowers are exempt.
Some lenders are trying to buck this trend by offering short-term incentives to retain customers coming off cheap deals. HSBC, for example, has promised to match the price of any fix that draws to a close between 1 February and the end of April. This rate can then be taken for a further two, three or five years.
However, borrowers will pay a fee for the privilege, and this will vary according to the size of the loan and how low the fixed rate was in the first place. In exceptional circumstances, the borrower may be refused, admits HSBC spokes- man James Thorpe.
"In effect, then, you come back to the same grey area surrounding retention-rate policies," says Ray Boulger, technical manager at broker John Charcol. But Mr Thorpe says that, so far, 93 per cent of borrowers have paid a fee of £500 or less.
For overall long-term value, the Woolwich makes its whole range of mortgage deals available to all borrowers – new and existing. "And even if a borrower has not managed to arrange a switch before their existing deal expires, they will be transferred to a special tracker deal of base rate plus 0.95 per cent instead of our SVR," says Woolwich spokes- man Andrew McDougall.
But in the vast majority of cases where retention rates are employed, borrowers should be wary of accepting the first deal they are offered by their existing lender, as they will almost always find better rates elsewhere. And according to Mr Boulger, most "prime" borrowers – if they have looked after their credit rating – should not have trouble remortgaging to these deals.
On the other hand, there are circumstances where it would make sense to stay with the same lender and opt for its retention rate, says Mr Montlake. "The first is if your financial situation has changed, such as you have become self-employed, earn less or have damaged your credit rating. This is because when you transfer products but stay with the same lender, a credit check will not be carried out. Second, if you are in a hurry, staying put can mean you transfer to the new deal immediately instead of waiting over three weeks to switch lenders."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Half of young women unable to ‘locate vagina’ and 65% find it difficult to say the word
- 2 Perez Hilton apologises for Jennifer Lawrence naked photo leak
- 3 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
- 4 Mexican woman becomes world’s 'oldest person' at 127
- 5 Jennifer Lawrence 'naked sex video' will be leaked threatens 4Chan celebrity photo hacker
Rotherham child sex abuse scandal: Labour Home Office to be probed over what Tony Blair's government knew - and when
What do immigrants really think of Britain? Polish immigrant's Reddit post goes viral
Ashya King: Parents of five-year-old boy refused permission to visit him in hospital and denied bail at Spanish court
With Douglas Carswell joining Ukip, my party has taken another giant step forward
When elitism grips the top of British society to this extent, there is only one answer: abolish private schools
Ukip Douglas Carswell defection: Tory MP jumps ship to join Nigel Farage
iJobs Money & Business
£40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...
£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...
£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...
£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony