Give your mortgage a spring clean

After last week's interest rate rise, it may be time to shop around for a better deal, says Christopher Browne
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The Independent Online

Have you switched your mortgage yet? The recent interest rate rise means it's time to spruce up your finances and make sure you've got the best loan that money can buy. For with UK credit, debit and loan debts running at £13,000-a-head, getting your monthly mortgage payment right could save you thousands of pounds a year.

Have you switched your mortgage yet? The recent interest rate rise means it's time to spruce up your finances and make sure you've got the best loan that money can buy. For with UK credit, debit and loan debts running at £13,000-a-head, getting your monthly mortgage payment right could save you thousands of pounds a year.

First though, approach your broker, financial adviser or accountant and see what they advise. If you are in the middle of a fixed-rate, discounted or some other competitive deal, they will probably suggest you stay put. If you are not, they'll invariably say it's time to look around. Speak to your lender and see if it can change you to a cheaper package. If it can't, seek out a better one. Your best move would probably be to get a two- or five-year fixed rate mortgage - lenders will soon put these up to cope with the new rate rise.

Many had only reently come down and among the keenest are two from the Portman and Derbyshire building societies at 4.49 and 4.45 per cent respectively. Both have redemption penalties within the two years, but, let's face it, you won't want to move the loan anyway.

There are several neat five-year deals for the smarter mover, too. Alliance and Leicester's 4.89pc mortgage leads the way, followed by Leeds and Holbeck (4.99pc), which has no redemption penalties during the loan. Another goodie comes from Leek United building society with a 4.99pc fixed-rate loan with a free valuation included, or you could opt for similar 4.99 per cent deals with The Woolwich and Bank of Ireland Mortgages.

Despite government murmurs about long-term fixes and the Miles report into whether they work, it still doesn't pay to fix for longer than five years. Rising gilts on the London Stock Exchnage mean lenders are finding these mortgages trickier and more costly to maintain. But, if you're still not convinced, try Britannia building society's 10-year fix at 5.34pc. It's a long lock-in and there are redemption penalties if you unlock, but, as David Hollingwoth of brokers London and Country Mortgages, says: "It could be a winner if interest rates go up 2 per cent in the next 10 years, although that is unlikely, and if they drop you'll really regret it."

You could however opt for Skipton building society's 10-year fix which at 5.99pc for the first year and 6.24pc thereafter is more costly but has no redemption penalties.

The downside of a long fix is that if a marriage or relationship breaks down or you have an enforced move for family, school or illness reasons, you won't have the flexiblity of being able to change. And even if you do move your 10-year fix to another home, you may find you need a far bigger loan - based on four-times salary instead of your previous three. And it'll be penalty time again.

Ray Boulger of mortgage broker Charcol says, interest rate rises apart, the best time to change your mortgage is three months before your current deal is up. "If you stay with your lender you can make the change immediately, if not it'll give you time to set up a new mortgage with another lender," he says.

One merit of remortgaging says Boulger is you can consolidate some personal debt, too, though he warns homeowners to be wary of lenders who sell debt mortgages on television as their low interest rates are often due to longer-than-normal repayment periods. "Read the small print very closely if you ask for a form," he advises.

Mr Boulger says some lenders will give free set-up fees (valuation, legal and arrangement costs) for smaller mortgages of under £100,000. But watch out, he says, if you enter the freebie zone (mortgage deals with gifts, cashback and no stamp duty) as there may be hidden costs.

The Boulger formula is to switch to capped (this sets a ceiling on the rate you pay for a fixed period) and discount (a set reduction on the lender's variable rate) deals "as I don't believe base rates will go above 5pc in the next 12 months, there are few signs to show inflation is rising and the UK is reaping the benefits of a weak dollar".

Two recommended ones are Charcol's own capped discount at 3.99pc with a 4.49pc ceiling. Though it has a redemption penalty, you can make over-payments if you wish. The other is a five-year discount of 3.71pc from National Counties building society. This too has a penalty/overpayment mix and is 80pc loan-to-value (ie you'll need a 20pc deposit).

Whatever you choose, do so soon, says Hollingworth: "Everyone should take a look at their mortgage now. If you are on a standard variable rate and it puts pressure on your monthly outgoings, move on to a better product, whether it's from your current lender or another that has a better offer."

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