Money Insider: How to protect yourself from mortgage hikes
Saturday 12 May 2012
More than a million people will have seen their monthly mortgage costs increase, following recent moves by Halifax, Clydesdale/Yorkshire banks and Bank of Ireland to hike their mortgage standard variable rates.
After almost three years with SVRs remaining static, these latest increases will make people sit up and take notice and evaluate their mortgage deals and decide whether it's time to take action.
Traditionally if you're looking for the peace of mind of a set monthly mortgage repayment you'll plump for a fixed-rate product for a term of between two and five years.
Other borrowers may be on a low standard variable rate but unwilling to switch to a new deal or new lender due to the associated costs, including a four-figure product fee as well as potential valuation and legal expenses.
As well as the security of a fixed-rate mortgage, there is now another option in the form of an insurance product from a company called Marketguard that enables you to cap your interest rate at a pre-agreed level in exchange for a monthly premium. This means that you won't pay any more than the agreed locked-in rate, even if rates start to rocket.
The product called Rateguard won't be suitable for everyone, but if you're on a very low SVR or have little equity or credit issues that prevent you switching to a new deal, this insurance is worth a closer inspection.
You pay a monthly insurance premium which buys you the protection of a cap on your mortgage interest rate. This means that if the rate rises and exceeds the cap, you will be covered and won't pay any extra.
You can set the cap in line with your current mortgage interest rate, or for a lower monthly premium you can set it at 0.5 per cent or 1 per cent above what you're paying at the moment. So if you're paying 3.5 per cent now and you set your cap at that level, if base rate or Libor increases lead to your rate being hiked to 4 per cent or 5 per cent or even more, you won't be affected.
The monthly premium for your cover depends on a number of factors, including the amount of your mortgage, the term you choose to cap your rate for (maximum is three years) and what level you decide to cap at. You can get an immediate quote by inputting your own details at www.marketguard.com.
Although the product gives borrowers another choice when considering their mortgage options, it won't be right for everyone. For example if you're already on a high SVR of say 4.5 per cent plus, you can still remortgage to a lower fixed-rate product, some of which also come with a low product fee.
Nobody really knows when and how quickly interest rates are likely to rise, but it's worth keeping an eye on the market as we've already started to see fixed rates slowly starting to head upwards in the past couple of months.
If you're interested in this alternative but not sure if this is the best choice for you, speak to an independent mortgage adviser, who will weigh up the costs and point you in the right direction.
Better off in the long run?
The credit card best-buy tables are awash with long-term interest-free offers with up to 22 months on balance transfers and 15 months on purchases available.
While the interest-free option can prove cost effective if used wisely and to its full extent, some consumers want a card with no freebies or bells and whistles, but just a low long-term rate.
New research shows that five years ago 10 per cent of credit card deals came without a 0 per cent option and offered a single-digit interest rate. Now that number has fallen to less than 4 per cent.
The average purchase rate on credit cards after 0 per cent deals expire is 17.3 per cent APR, but there are some excellent long-term low-value deals that are head and shoulders above most of the market, with Sainsbury's Finance Low Rate MasterCard at 6.9 per cent APR and Barclaycard Platinum Simplicity at 7.9 per cent APR leading the way.
You'll need a decent credit record to bag yourself one of these highly competitive deals, but at a rate well below half the average charged on credit cards, it makes good financial sense to have this sort of plastic in your wallet.
It's important to consider the benefits of introductory offers against cards with good standard long-term rates; in many cases the latter could make more sense.
Andrew Hagger – Moneynet.co.uk
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
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