It's a good time to switch ...
... but look before you leap into a new home loan, says Paul Slade
First-time buyers often prefer discounted and cashback deals but the most popular among borrowers who are remortgaging is the fixed-rate loan.
Nick Deutsch, the chief executive at First Mortgage Securities, a telephone lender, says: "When interest rates are low, the sensible thing is to lock in what you can for as long as you can." Remortgaging can save you a lot of money. But there are pitfalls and you should be careful to read the small print. Here are some of the main points:
q Go to your existing lender first. You may get a better deal by offering a different lender the chance to win your business. But your starting point should still be the lender you use now. Mr Deutsch says: "People will provide substantial discounts to attract new customers. But by approaching your existing lender you will at least see a benchmark so you know what it is you have to beat."
q Beware of hidden costs. Your existing loan may make a penalty charge if you want to pay it off in the first few years, so you must be clear this is a price worth paying to get the new deal. Look out for early redemption penalties on any new loan.
Chris Scales, of Mortgage Intelligence, which is a network of independent mortgage brokers, says: "A lot of fixed-rate offers have redemption penalties for the first five years. If you think you might want to move in that time, then you need to ensure the mortgage is portable. If not, you are really stuck." You will also need to factor in any arrangement fees, (re)valuation costs and the like.
q Be honest with the lenders. Mr Deutsch says: "We occasionally get people calling us and saying 'Well, what do you want me to tell you my income is?' That is just a waste of everybody's time. There is no point in being other than straightforward and honest because lenders check all the information you have provided. You might as well declare everything."
q Don't miss the boat. Mr Deutsch says: "The questions to ask yourself when remortgaging are: 'Are interest rates low? Do I expect them to get significantly lower? If I delay is there a risk they'll go up before I get round to doing anything about it?"
The key factor in this calculation may be the General Election. No government is keen to put up interest rates in the run-up to an election, fearing that the political price they pay for this unpopular decision will be too high. As Mr Scales points out: "It's easier for politicians to put up rates early or mid-term than it is coming up to an election - it's as simple as that." For those thinking rates may go yet lower Mr Deutsch adds: "It's very, very difficult, even for professionals, to hit the very bottom of the interest rate cycle, simply because you don't know until it is passed that it was the bottom. You have to live with the fact that you may miss it by a bit."
q What if I have got a poor payment record? A mortgage broker will be able to shop around for you and find a lender prepared to take you on at the best rates available. Many lenders now offer special loans that will let you move on if you are in negative equity. Even if you have county court judgments against you, a broker should still be able to help, although your choice of loans will be more limited. Don't despair.
q Look to the future. When you decide on a new deal think not only of your circumstances now but also what might happen in a few years' time. If you are thinking of starting a family in the next few years, for example, the last thing you will want is to mortgage yourself to the hilt.
Mr Scales says: "If someone has gone right up to the top of their permissible income multiples, the advice would probably be to go for a fix, because you have got the certainty of payments. If someone had a small loan compared with their income, they might want to go for a discount or a cashback, because they could absorb any fluctuations in interest rates."
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