The election could change your borrowing plans
An uncertain result makes selecting a mortgage even harder. Laura Howard explores the options
Sunday 18 April 2010
Choosing whether to opt for a fixed or variable rate mortgage is not easy at the best of times. But in the run-up to a close election, things become even more confusing, as the future of interest rates and the wider economy hangs in the balance.
"The outcome of the election is particularly unclear, as are the implications – such as how the winning party will lead us to economic recovery," says David Hollingworth of mortgage broker, London & Country. "For borrowers, then, it's hard to know what to do for the best."
The situation is made murkier still by the feasible prospect of a hung parliament – where no political party has an outright majority of seats. "A hung parliament would be a recipe for parliamentary indecision and inaction, and one thing the money markets hate is uncertainty," says Ray Boulger of broker John Charcol. Nervous money markets usually result in increased costs of funds which, in turn, would push up the price of mortgages.
There are two equally valid approaches borrowers can take, according to Hollingworth. "You could decide to take a 'holding approach' by opting for a cheaper tracker now and waiting to see how rates pan out after the election. With some lifetime trackers you can leave at any time without paying an early repayment charge. Alternatively, you could decide that now is the time to seek out security with a fixed rate mortgage in advance of the election result."
But there are ways to hedge your bets too. For example, as a mortgage application is unlikely to complete by 6 May anyway, you may be able to change your mind half way through the process once you are armed with more information. But it's worth knowing the lender's policy on this in advance, says Melanie Bien, a director at broker Savills Private Finance.
"If you decide to apply now but potentially pull out later, avoid lenders that charge the arrangement fee up front as you could end up paying up to £1,000 which you won't get back. Some lenders, such as Lloyds and Nationwide only charge a non-refundable booking fee of £99 to reserve a rate, which is less of a hit, while others don't charge any non-refundable fee upfront."
Some mortgage deals are actually designed to allow borrowers to change their minds. Nationwide, for example, offers a "switch and fix" option on all its tracker deals, allowing customers to jump to a fixed rate at any time without incurring early repayment fees.
"The switch and fix facility gives customers peace of mind at a time when it is particularly hard to predict the future," says Katie Moore, a spokeswoman for the building society. "It gives borrowers the confidence to take advantage of a low interest rate environment with a tracker and, if interest rates start to rise or their circumstances change, they can fix in."
However, while early repayment charges are not payable on the tracker, there will be an arrangement fee for switching to the fixed rate deal, which will need to be factored into what you are saving, says Boulger.
If you prefer to lock in the rate you pay but are concerned about doing it now, HSBC and First Direct allow you to book a rate up to six months in advance. "For example, you could reserve our best-buy 2.99 per cent two-year fix today and draw down the funds anytime within the next six months, whether the deal is still available then or not," says spokesperson James Thorpe.
"This means if you are currently paying less than 2.99 per cent – such as Nationwide's base mortgage rate of 2.5 per cent – you can continue to do so for up to a further six months if you wish. But if this rate increases you can switch over to the fix at any time." If you decide to pull out entirely however, arrangement fees – in this case £999 – are not refundable.
If you do opt for a fixed rate however, a five-year term is probably more sensible than a two-year term. "We believe that interest rates will be rising in a couple of years' time so you will be remortgaging again just when rates are higher," says Bien.
But even the uncertainty of a hung parliament is not certain and, while politics may be an added consideration for mortgage-hunters, borrowers should still look at their choices at a grass roots level, says Bien: "While you can hedge your bets, there is a strong argument for choosing the type of mortgage that best suits you, whatever happens with the election. For those on a tight budget who like to sleep at night, a fixed rate is usually a good idea. However, if you can afford your mortgage in the event of rates rising, then a base rate tracker looks a good bet; these are initially cheaper than fixes, plus, interest rates likely to remain low for a couple of years."
While seeking advice from a broker might seem particularly sensible during pre-election uncertainty, borrowers should be aware that most of the market-leading deals in both fixed and tracker camps are offered by lenders that don't deal with brokers.
The Post Office for example, which is a direct-only lender, is offering a five-year fixed rate at 4.59 per cent in return for a 40 per cent deposit. First Direct lowered its five-year fixed rate to 4.54 per cent on Thursday. Woolwich and Nationwide – both accessible through brokers – have deals priced at 4.99 per cent in return for a 30 per cent deposit.
The best lifetime tracker is from First Direct – another lender that only accepts business directly from the consumer. It is priced at bank base rate plus 1.89 per cent, making a current rate of 2.39 per cent. The deal, which comes with no early repayment charges, is available on a repayment basis only, and up to a maximum loan to value ratio of 65 per cent. Woolwich has a lifetime tracker priced at 1.99 per cent above base rate, at up to 70 per cent loan to value ratio.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Labour rallies behind Flint as deputy leader to offset a Corbyn win
- 2 Katie Hopkins reveals fear she will die during brain surgery to cure epilepsy
- 3 The difference between a psychopath and a sociopath
- 4 Dutch King Willem-Alexander declares the end of the welfare state
- 5 'Cool kids' can go on to become losers in later life, study finds
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn – or a return to a Labour government
Is Britain really full up? Are migrants taking our jobs? Leading academic answers the most common anti-immigration claims
Calais Migrant Crisis: Deputy Mayor of Calais labels Cameron's use of 'swarm' as 'racist' and 'ignorant'
While we fixate on Calais, the Home Office is quietly deporting dozens of migrants on 'ghost flights'
Calais crisis: The seven claims made about the migrants - and the reality
Calais crisis: For desperate migrants it is 'England or death' as they brave dogs, riot police and speeding trains
iJobs Money & Business
£30000 - £35000 per annum: Recruitment Genius: This is an exciting opportunity...
£13000 - £15000 per annum: Recruitment Genius: Are you passionate about custom...
£22000 - £25000 per annum: Recruitment Genius: Main purpose: Under the directi...
£35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...
Day In a Page
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.