Mortgages that are safe as houses

'Our most important possession still seems uniquely vulnerable to fluctuations in interest rates'

Nationwide, the UK's biggest building society, stepped up the mortgage price war on Wednesday when it cut its standard variable rate by 0.2 per cent to 7.09 per cent.

Nationwide, the UK's biggest building society, stepped up the mortgage price war on Wednesday when it cut its standard variable rate by 0.2 per cent to 7.09 per cent.

Does this mean Nationwide has correctly forecast the next decision by the Bank of England's monetary policy committee, and that the next movement in interest rates will be downwards?

This is an important question for anyone deciding which mortgage to choose. There are many influential voices arguing that rates still need to move upwards, because of such factors as wage inflation and a recovery in London house prices.

One of the easiest ways to make yourself look foolish is by being too confident in predicting what is going to happen to interest rates. Nationwide's move says far more about the cut-throat competition between mortgage lenders than about the direction in UK interest rates. This particular rate cut is good news for Nationwide mortgage customers, but not so good news for savers - whose rates were also lowered by the Nationwide.

Introductory rates being offered by mortgage lenders nowadays are fairly eye-popping, with some deals charging as little as 4 per cent for the first year. The trouble with trying to compare mortgages is that, like many financial products, there are so many different features that hardly any two mortgages are the same.

I suggest you bear a number of principles in mind when seeking the best deal for you, and demand straight, simple answers from your chosen mortgage adviser.

The first thing I always worry about is lock-in charges - penalties for leaving your mortgage "early". I say this having been victim to a clause in an HMC mortgage in the late 1980s which kept me paying over the odds long after the initial "two-year reduced rate" period. As a rough rule-of-thumb, I think it's reasonable to accept lock-in penalties for a two-year period ie get a good rate for two years and then look around for a new deal.

Ideally of course it would be nice to get a mortgage with no lock-in penalties at all, one you could walk away from at any time. But as always, there is a trade-off. You will only get a better rate if you agree to some form of lock-in.

There is also a trade-off between the amount you borrow relative to the value of the property, and the rate you will be able to get. Most mortgage deals offer a much better rate at 75 per cent "loan-to-value" (LTV) than at 90 per cent. There will usually be a higher rate again for 95 per cent, while most lenders are reluctant to lend 100 per cent

The same goes for fixed rate and capped loans, now more popular than the traditional variable rate loans. Again, I think it is worth paying more to assure yourself of at least a couple of years' peace of mind, after which you can again look around for a new mortgage. You should bear in mind that most Americans take out home loans on fixed rates lasting 20-30 years, and it doesn't seem to do them any harm. Although more of us are taking out fixed or capped mortgages, our most important possession - the place where we live - still seems uniquely vulnerable to fluctuations in interest rates, bizarrely so in foreign eyes.

I am a fan of flexible mortgages, an invention of Australia rather than the US. With a flexible mortgage, you are allowed to pay off more or less each year depending on your circumstances. Again this will cost extra, but I think it's worth it.

John Willcock is personal finance editor of The Independent

j.willcock@independent.co.uk

Life and Style
Fans line up at the AVNs, straining to capture a photo of their favourite star
life Tim Walker asks how much longer it can flesh out an existence
Life and Style
Every minute of every day, Twitter is awash with anger as we seek to let these organisations know precisely what we think of them
techWhen it comes to vitriol, no one on attracts our ire more than big businesses offering bad service
News
Professor David Nutt wants to change the way gravely ill patients are treated in Britain
people Why does a former Government tsar believe that mind-altering drugs have a place on prescription?
News
Norway’s ‘The Nordland Line – Minute by Minute, Season by Season’ continues the trend of slow TV
television
Arts and Entertainment
art
Sport
Jonny Evans has pleaded not guilty to an FA charge for spitting at Papiss Cisse
football
Life and Style
Kate Moss will make a cameo appearance in David Walliams' The Boy in the Dress
fashion
News
The image released by the Salvation Army, using 'The Dress'
news
Sport
Liverpool defender Kolo Toure
football Defender could make history in the FA Cup, but African Cup of Nations win means he's already content
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Customer Relations Officer

    £13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Jemma Gent: Project Coordinator

    £12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...

    Recruitment Genius: Evening Administrator

    £8 per hour: Recruitment Genius: This Pension Specialist was established early...

    Day In a Page

    Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

    Homeless Veterans campaign

    Donations hit record-breaking £1m target after huge gift from Lloyds Bank
    Flight MH370 a year on: Lost without a trace – but the search goes on

    Lost without a trace

    But, a year on, the search continues for Flight MH370
    Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

    Germany's spy HQ springs a leak

    Thieves break into new €1.5bn complex... to steal taps
    International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

    Whirlwind wit of Simone de Beauvoir

    Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
    Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

    Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

    Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
    Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

    Confessions of a planespotter

    With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
    Russia's gulag museum 'makes no mention' of Stalin's atrocities

    Russia's gulag museum

    Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
    The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

    The big fresh food con

    Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
    Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

    Virginia Ironside was my landlady

    Tim Willis reveals what it's like to live with an agony aunt on call 24/7
    Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

    Paris Fashion Week 2015

    The wit and wisdom of Manish Arora's exercise in high camp
    8 best workout DVDs

    8 best workout DVDs

    If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
    Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

    Paul Scholes column

    I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
    Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

    From the Azteca to Vicarage Road with a million followers

    Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
    Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

    Khan ready to meet winner of Mayweather v Pacquiao

    The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
    War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

    Baghdad fights to win back Tikrit from Isis – but then what?

    Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable