You, your mortgage and the big E

Uncertainty about Britain joining the euro makes it hard for buyers to judge which mortgage deal to go for
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The Independent Online

What do you do when a major government decision on the euro occurs during those emotion-filled moments of buying a new home? This was the dilemma facing 40-year-old media consultant Jane Harkness recently.

Ms Harkness has what most lenders would describe as a "near-perfect profile" - a healthy salary, few debts and a sizeable chunk of cash to put down on a new property. Yet when Tony Blair and Chancellor Gordon Brown made that momentous announcement, it threw much of the UK, the stock market and every self-respecting homebuyer into a state of flux.

For, as the Treasury pointed out, joining the euro could create big housing problems. Though the low interest rates of the current euro recession would certainly create a UK housing boom, later, as the euro-economy recovered, interest rates would rise again, making UK house prices crash.

So, faced with such euro-uncertainty, we asked three independent financial advisers/brokers what Ms Harkness should do. First, though, we gave them her "buyer's profile": media consultant, single mother with a nine-year-old daughter, sold Crouch End house for £425,000, agreed £410,000 purchase price for a four-bedroom one in Sevenoaks, £250,000 cash to put down and £170,000 mortgage needed. Aiming to relocate in five years' time.

Dave Smith, of HJP Financial Services in Surrey, said Ms Harkness should opt for a short-term fixed-rate mortgage: "If you'd approached me a few months ago I'd have suggested a discount mortgage as the rates have been very attractive, but several highly competitive fixed rates have now emerged at under four per cent. As some of the longer fixes have redemption penalties and aren't exactly brilliant value at the moment, it would be best for her to go for a two-year one with no penalties and see what's on offer at the end of the loan period. Then, because the market is so competitive, she may be able to switch to a lender with an equally good fix with no arrangement or valuation fees." He added "If the UK joins the single currency in a few years' time, Ms Harkness may be able to switch to a flexible euro mortgage at a very low interest rate."

David Hollingworth of London and Country Mortgages said attitude was the key to Ms Harkness's financial future. "With such an excellent profile, she virtually has the pick of the mortgage market. If she is looking for medium-term stability and wants to move again in five years' time, the five-year fix offered by Bristol and West at 3.95 per cent would be ideal," he said.

If, however, she favoured a more adventurous approach, Hollingworth recommended Ms Harkness take out a two-year tracker mortgage. "As more cuts in interest rates are likely, this could prove a very good bet," he said, adding that one of the best trackers around was Abbey National's two-year mortgage, currently 3.39pc and 0.36pc below the bank rate. "Although there have been some good discount mortgage deals around, they are less dependable than trackers as they are based on an individual lenders' standard variable rate, not the bank rate, which means any interest-rate cuts may not be passed on to customers."

When we approached Simon Leak, of Middlesex-based Executive Mortgages and Investments, with Ms Harkness's profile, he logged on to his company's database and found 973 fixed and discount mortgages, ranging from two to five years. "We always give clients what we consider to be the six best deals for their individual circumstances, so that they can live peacefully and sleep easily at night," said Leak.

Portability should be Ms Harkness's priority, he said, particularly if she aimed to move again in five years' time. "She must make sure any loan she takes out can be transferred on to her next home, especially if she has a longer-term fixed-rate mortgage. She should also make sure she reads the four pages of small print in her contract, so she doesn't get locked into a mortgage with heavy redemption penalties," he added.

Leak, who has been a mortgage broker for 30 years, said: "As no one knows when we will be joining the euro, it would be a good idea for Ms Harkness to take out a shorter-term loan so she can take advantage of any UK bank rate cuts and have the flexibility to switch to a euro-currency mortgage if it has similar or even better benefits."

Meanwhile, back to Ms Harkness: "I was really worried when I saw the headlines about the uncertainty over the euro and the markets being thrown into disarray, but I feel much more relaxed now, " she said. "I've decided to opt for a two-year fix, so that if the UK does decide to go into the euro at some stage, I can switch my mortgage around again at short notice."

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