Would a 0% mortgage tempt you? Be careful...not everyone can benefit
Looking for help to get on the property ladder? A 0% mortgage is likely to prove popular with cash-strapped first-time buyers
Simon Read is Personal Finance Editor at The Independent. He edits the Saturday Your Money section and writes the Daily Money column and Wednesday’s Midweek Money section in i newspaper. He also writes for the news and business pages of the Independent and i newspaper and is a regular money commentator on TV station London Live. He has won numerous awards including Consumer Finance Journalist of the Year.
Friday 16 May 2014
There's no such thing as a free loan, but a deal from the Leeds Building Society is close. It's offering a 0 per cent mortgage for three to six months.
The catch? There are one or two, although it's not the first time the mutual has offered a 0 per cent loan, having first launched one as part of its Welcome range last summer. And while there will be no interest charged during the offer period, repayments will have to be made.
The new wrinkle is that the 0 per cent is being offered on Help to Buy mortgages, the Government scheme which allows potential homeowners to buy a new or existing home with a 5 per cent deposit.
The deal has been launched in conjunction with Barratt Developments, meaning you have to buy one of the developer's properties to qualify. However, interestingly, on top of the short-term zero-rate option the society is offering a 10-year fixed rate loan.
Jonathan Harris, of mortgage broker Anderson Harris, said fixing for a decade could be a good option. "A 10-year fixed rate option widens the choice available to those taking advantage of the Government's scheme and gives security for a longer period of time. The rate isn't bad either."
The 10-year fix is available at 5.16 per cent if you choose three months' 0 per cent, or at 5.34 per cent if you go for the six-month option. This week Newcastle Building Society launched its own decade-long fix for those with a 20 per cent deposit, at 4.49 per cent.
However, Mr Harris has a warning for those tempted by the longer fixes: "It's important not to fix for longer than you are absolutely sure about or you will have to pay a redemption penalty to get out of the mortgage before the fixed term ends."
David Hollingworth of London & Country Mortgages is sceptical of decade-long deals. "Long-term fixed rates provide certainty of payment and budgeting security but have always struggled to gain a following," he said. That is partly due to the higher rates and Leeds' latest deal is certainly that at almost twice the rate of its Help to Buy two-year fix, which charges 2.5 per cent.
But people are often also put off because of the need to lock in throughout the fix, which can be too restrictive for many. "It's great to see a lender broaden the product options but the long-term fix may still appeal only to a certain niche," Mr Hollingworth reckoned.
Looking more closely at the 0 per cent offer, Ray Boulger of John Charcol said: "The combination of no payments on 20 per cent of the purchase price as offered through the Help to Buy scheme, plus 0 per cent interest for three or six months on the balance of the mortgage, gives borrowers the option of even lower mortgage payments initially while they kit their new property out."
Mr Harris agreed. "The choice of not paying interest for the first few months will be popular among cash-strapped first-time buyers," he said. "The money that would have gone on the mortgage can be used to buy furniture or replenish savings which have gone towards the deposit, while you know that the mortgage will be paid off in full by the end of the term."
So if you want a brand new Barratt home, should you rush for the deal? Mr Boulger said the rates offered are reasonably competitive, "except the five-year rate, where Santander currently offers 3.44 per cent with no arrangement fee, a free valuation and £250 cashback".
But he warned against choosing a two-year fixed rate under the Help to Buy scheme: "At the moment no lenders are offering viable remortgage options for Help to Buy-type equity share mortgages, unless the purchaser repays the equity share. This means those taking a two-year fix run the risk of having few options at the end of the initial fixed rate."
The mortgage market is full of complications, meaning borrowers should look beyond the headline deals and, ideally, get expert help.
Speak up if you're behind. There's help...
The number of people who complain about the cost of their mortgage is soaring to record levels, but many are leaving it until they get into financial trouble before raising the alarm.
Problems are becoming so bad that lenders have been told this week to "get creative" and do more to help struggling borrowers.
The Financial Ombudsman Service's latest complaints data, which was published on Wednesday, revealed that last year 13,659 people – the highest number recorded – contacted the ombudsman for help with a mortgage or secured loan problem.
Worryingly, a third of these had slipped into arrears before they sought help. And, of the remaining cases, a large number of those struggling to make ends meet felt unable to say that they were facing significant financial problems.
The chief ombudsman, Tony Boorman, said: "Mortgages are the most significant purchase most of us will make in our lives, so we understand why people might be reluctant to say that they're struggling to pay for their home.
"Many of the cases where people face losing their home have been heartbreaking to deal with – but could potentially have been avoided. So if money is tight, you should never be afraid to ask for help or guidance. Speak up sooner rather than later; there's a lot that can be done to help before things get out of hand."
The ombudsman has been alerting lenders that they're expected to get creative when helping people get back on track – especially before payments get missed. And though early signs suggest that this is having an impact, there's still more that they should do to help, Mr Boorman said.
Typical areas of complaint taken to the ombudsman relating to financial difficulties include arrears handling, charges, repossession, post-repossession problems and recovery of shortfalls.
Other problems mentioned by people in arrears included sales and advice, mortgage administration, upfront fees charged where no mortgage is offered and declined offers.
There have also been disputes over valuations and allegations of misrepresentation, suitability or misleading literature. "Consumers and lenders have a responsibility to work together when problems arise," Mr Boorman said.
There was positive news last week when the Council of Mortgage Lenders said the number and the proportion of mortgages in arrears fell during the first quarter of 2014.
CML's director general, Paul Smee, said: "The downward trend in the number of mortgages in arrears is welcome. Repossession is the last resort – the aim is to keep people in their homes and get their finances back on track whenever possible.
"Lenders recognise that, behind the numbers, these are real households, with differing circumstances. Lenders are improving their practices to try to achieve the best outcomes when payment problems occur," he added.
But the Money Charity revealed last week that average household debt, including mortgage, was £54,546 in March, up from £54,434 in February. The UK is experiencing the biggest increase in loans and overdrafts for individuals since February 2008.
Michelle Highman of the Money Charity, said: "Borrowing money when it's done in an affordable way, can make things happen that would otherwise seem impossible.
"However, if you don't have a plan to pay the money back, things can quickly spiral into more difficult, unmanageable debt."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Australia to impose 24-hour curfew on all cats to protect endangered species
- 2 The difference between a psychopath and a sociopath
- 3 Black and ethnic minority people twice as likely to be hit by Tory cuts than white people, report finds
- 4 Walter Palmer: Cecil the lion killer revealed to be American dentist
- 5 What TripAdvisor users think of 16 of the world's most popular landmarks
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn – or a return to a Labour government
Labour leadership contender Jeremy Corbyn says 'we can learn a great deal from Karl Marx'
I am the Jeremy Corbyn supporter that many will tell you doesn't exist
Public anger after French sunbather beaten up by gang for wearing a bikini in Reims park
Labour leadership: New poll shows party is now even 'less electable' than under Ed Miliband
Labour leadership contest: I would never quit the party, says Liz Kendall
iJobs Money & Business
£45 - £55k DOE: Guru Careers: A Financial Controller is required to join a suc...
£12500 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£22500 - £24500 per annum: Recruitment Genius: Inbound and outbound calls with...
£18000 - £40000 per annum: Recruitment Genius: This fast growing Insurance Bro...
Day In a Page
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.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.