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 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Rozanne Duncan: Ukip expels councillor for 'jaw-dropping' comments made in BBC TV interview
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
iJobs Money & Business
£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...
£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
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