Money Insider: Fixed rates hold growing appeal for homeowners
Saturday 20 August 2011
The volume of fixed rate mortgage searches on Moneynet climbed 22 per cent in July compared with the previous month. It seems consumers are again starting to favour the comfort of longer-term security over a lower cost variable rate.
This change of heart has undoubtedly been triggered by some of the ultra low rates we're now seeing. Some of these fixed deals have now reached a level that makes them a serious alternative to standard variable rate and discounted variable rate deals.
To give you a flavour of some of the keenest fixed rates available, Chelsea Building Society has a two-year fix at 2.69 per cent with £195 fee (maximum 70 per cent LTV), Yorkshire Building Society a three-year deal at 3.14 per cent with £95 fee (maximum 75 per cent LTV) and, if you're looking longer term, you can get 3.69 per cent fixed for five years from Yorkshire with a fee of £95 (maximum 75 per cent LTV). I don't see fixed rates falling much further but some banks have yet to respond to recent falls in swap rates, so there are likely to be other lenders launching rates coming close to those mentioned. It's still not an easy call for mortgage borrowers, as there are pros and cons for both variable and fixed rate products, but as always it's important that consumers seek guidance based on their own financial situation.
With a fixed rate, you may find yourself currently paying over the odds when compared with some variable rate products, but the peace of mind offered by a fixed affordable monthly repayment, particularly over a longer term, will still be the key reason to purchase for many.
New insurance shouldn't be dismissed because of PPI fiasco
It's not surprising that consumers are hesitant about signing up for any form of insurance protection in the wake of the widespread bad press surrounding the payment protection insurance (PPI) mis-selling scandal.
However we now have a situation where there is a general lack of trust in protection cover and sadly people who may need valuable back up won't even give it a second thought. Even though billions of pounds of compensation are being paid out by the banks, the image of protection cover in its various guises remains in shreds.
With the Government warning that further painful and unavoidable cuts are still to come, people will be concerned about how this will impact on jobs and, in times of such economic uncertainty, income protection cover can prove to be a vital safety net.
This week, Nationwide Building Society launched a short-term income protection policy entitled Lifestyle Protector. It differs from the old style PPI in many ways. With PPI you had to pay the full premium up front, it was added to your loan and you were charged interest on it. If you repaid your loan or cancelled your policy early, you lost out financially as the refund wasn't made on a pro-rata basis.
Overall, the PPI product was seen as a very poor deal for the borrower while being a huge profit generator for the lenders. The new Lifestyle Protector offers more flexibility and choice for someone looking to protect their finances and, more importantly, you can tailor the cover so you only pay for what you need.
You can choose to protect a set monthly amount (not just loan or mortgage commitments) up to a maximum of 60 per cent of your gross monthly income. You select whether you need protection against sickness, unemployment or both and choose how long you want to wait before the policy pays out, and the longer you wait the cheaper the cover becomes. Premiums are payable monthly, but unlike PPI of old you can cancel at any time without any financial penalty.
Nationwide staff may have a battle trying to win over the doubters, but it's a decent product and worth people getting a quick quote to understand the cost and benefits before writing it off. It's a shame that PPI has left such a bad taste, and it's important that people understand this is not more of the same, but something that will help to protect themselves and their families, without costing a fortune.
Take a couple of minutes and ask yourself, "If I was unable to work for the next six months, could I continue to pay the household bills?" If the answer is no, then considering some form of income protection could be a financial lifesaver and definitely warrants a closer look.
Andrew Hagger is an analyst at Moneynet.co.uk
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