You're not doomed to soaring costs if a cheap mortgage dies
How to keep the repayments down at the end of a quick fix
Sunday 25 February 2007
Tens of thousands of homeowners who have enjoyed cheap fixed-rate loans are bracing themselves for the end of the party. Anyone whose two- or three-year deal is about to expire is likely to face higher monthly payments on the next loan.
Since February 2004, the Bank of England has hiked the base rate a total of five times from 4 per cent to its current 5.25 per cent (not-withstanding a dip from 4.75 to 4.5 per cent between August 2005 and 2006).
The impact on short-term deals has been marked. At the start of 2005, Portman building society offered a two-year fix at 4.49 per cent with a £399 arrangement fee. Last week, the nearest equivalent deal with the same lender was priced at 5.12 per cent with a £999 arrangement fee.
For many homeowners, the best deal their existing lender can offer may add more than £100 a month to their mortgage, while a move elsewhere may trigger expensive arrangement fees (at an average of £578, says financial analyst Money-facts) and mortgage-exit charges (an average of £160).
However, there are ways to keep your short-term monthly outgoings roughly the same, including spreading your repayments out over a longer period.
"Most lenders will now allow you to extend your mortgage term up to retirement age, and even beyond if you can prove a pension income," says Ray Boulger of broker John Charcol. "Clearly, the longer you borrow for, the more expensive the loan [in terms of extra interest to be paid]. But if your new mortgage payments look unrealistic and there is a risk of falling into arrears, this has got to be a better option in the immediate term."
If you're on a repayment mortgage, you could switch for a limited period to a deal where you just pay off the interest. A £200,000 interest-only mortgage, taken over 25 years and priced at 5.5 per cent, costs £311 a month less than it would on a repayment basis.
Louise Cuming, head of mortgages at the price-comparison website Money- supermarket.com, says: "It does not make financial sense in the long term to switch to interest-only or even extend the term of your loan. But when it's about affording the 'here and now', they become two very sensible options."
She stresses the importance of going back to a repayment plan when you can afford it, and either overpaying or shortening the term of the mortgage to catch up with repayments.
Another alternative for those coming off a cheap fix is to consider a stepped discount mortgage. This offers a percentage off a len- der's standard variable rate in the first year, a smaller discount in the second and a still smaller one in the third - and could provide some breathing space.
But borrowers should be warned that the deeper the saving in the first year, the bigger the steps up.
In any calculation of what to do, it's imperative to work out exactly what your new monthly mortgage payments will cost. Look beyond "best buy" tables that focus on the interest rate, and make sure you take any charges into account.
It's not just a case of avoiding the "extras", as deals with high fees often provide the cheapest rates. If you have a large loan, forking out for the arrangement fee can be worthwhile.
For example, broker John Charcol last week launched a tracker mortgage priced at just 4.49 per cent (0.76 per cent below base rate). So the £1,699 arrangement fee can make sense on the product's minimum loan size of £500,000.
Lender is shown the door
The two-year 4.49 per cent fix taken out by Richard French with Portman building society comes to an end on Wednesday. When Mr French enquired about a new deal, the best the lender could offer him at the time would have added £150 to the monthly repayments on his £176,000 mortgage.
"This was worrying as my wife, Qing, and I have just had a baby and I am now the sole earner," says Mr French, a 32-year-old computer programmer who lives in Surrey.
He went to broker London & Country, which sourced a 5.14 per cent two-year fixed- rate deal with the Halifax. "The mortgage had an arrangement fee of nearly £1,000, but even after adding this to the loan, my repayments are only £50 more than they had been."
Mr French adds: "I would have to be really desperate to extend the term of my mortgage or switch to an interest-only deal.
"Although I have concerns about what will happen with rates when this new deal comes to an end, I am still well within affordability."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Three-quarters of Britons are saying it wrong - the top ten most common mispronunciations
- 2 Watch: The student election Macklemore parody that isn't completely awful - and all the others that are
- 3 Son attacks Apple after it refuses to unlock his late mother’s iPad
- 4 Grace Dent: Who cares if she spells it Barraco Barner? Gemma Worrall is more employable than some bookish arts graduate
- 5 First Kiss: Filmmaker gets 20 strangers to make out on YouTube with awkward results
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Exclusive: Impact of immigrants on British workers ‘negligible’
Katie Hopkins continues campaign to become Britain's most hated talking head with poorly timed Bob Crow tweet
Ukraine crisis: Russia pledges to 'retaliate against sanctions' as Ukrainian president says Crimea vote will not be recognised
The quiet diplomat: Catherine Ashton - recognised and admired in all the world’s troubled countries, yet ridiculed at home
Grace Dent: Who cares if she spells it Barraco Barner? Gemma Worrall is more employable than some bookish arts graduate
iJobs Money & Business
£1000 per month: Inspiring Interns: The company works with Tier 1 FTSE 100 Ban...
£35000 - £60000 per annum + Bonus + Benefits: Pro-Recruitment Group: You must ...
£60000 - £80000 per annum + BONUS + BENEFITS: Harrington Starr: A top, City ba...
VOLUNTARY ONLY - EXPENSES REIMBURSED : Reach Volunteering: Fantastic opportuni...
Day In a Page
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill