On the lookout for a deal in a thousand

Autumn Property Survey: Cashbacks, fixed rates, discount mortgages

THE MORTGAGE merry-go-round has taken a turn for the better this past month, after most of the main lenders reduced their rates, leaving the home-owner with an average pounds 50,000 mortgage pounds 11 a week better off. The cuts took effect immediately for new borrowers and apply from tomorrow to the rest.

The rate falls are typical of recent activity in the mortgage marketplace, which has seen a succession of special offers and deals by lenders desperate to attract borrowers. The reason is simple - new borrowers are disappearing. The Council of Mortgage Lenders reports that the number of people taking out mortgages has virtually halved since the 1980s, falling from 2.2 million transactions in 1988 to 1.2 million last year. Lenders say the normal figure should be around 1.8 million a year and have been actively encouraging borrowers. There are now almost 1,000 different mortgage deals available to new borrowers or those wishing to remortgage. Britain's biggest mortgage lender, the Halifax, offers 19 options.

Spoilt for choice? Maybe, but borrowers can practically go into a building society or bank these days and negotiate their own deals. Do you want to know exactly how much your mortgage repayments are going to be in the next year or two? Then take a fixed rate. Or do you want to be sure that you will be paying less than the standard rate? Then take a discount mortgage.

If you have a sizeable deposit to put down, then your savings will be higher. The small Hinckley & Rugby Building Society, for instance, currently offers a fixed rate of 0.75 per cent until 1 September next year, if you have a deposit of 30 per cent. Or if you can manage just 10 per cent, the Bristol and West can offer a 1 per cent fixed mortgage until 31 August next year.

With these kinds of deals there may be drawbacks, however. Redemption penalties may come into play if you change mortgage lenders, even after the fixed-rate period has finished. For instance, the Hinckley & Rugby will expect you to repay the savings you make on its fixed rate if you move your mortgage within the first three years of its life, which means you will pay for two years after the benefit has discontinued.

The offers are set to continue despite the downward trend in standard rates, according to Jim Chadwick, marketing director of Barclays Mortgages. "Lenders will be reviewing discounts and cashbacks, and they will be fine- tuned, but they won't really be affected by the drop in rates," he says.

It's not just fixed rates and discounts on offer: many lenders will now pay good money in the form of cashbacks to attract borrowers. At the Chelsea Building Society, for example, a borrower can receive 5 per cent of the mortgage balance as a lump sum after making the first month's payment. The Chelsea's Cashback Plus mortgage also offers free redundancy insurance for a year.

This is relevant because the Government introduced changes to income support regarding mortgage payments in the last Budget. The new rules mean that anyone taking out a mortgage after today loses the right to state benefit for the first nine months to cover their mortgage payments if they are made redundant, or if they are unable to work due to illness or accident.

Mortgage Protection Plan insurance to cover these repayments can cost around pounds 7 per pounds 100 of benefit, so looking for deals offering free protection is worthwhile. Research published earlier this month by Barclays Bank shows only one in three people is aware of the changes in benefit, which may account for the lack of a mortgage rush.

If you were not able to sign up for a mortgage before the 1 October deadline, it could be worth waiting a while, according to Walter Avrili at the mortgage brokerJohn Charcol.

"This month's drop in rates has been made by lenders for competitive reasons, but it also serves as a signal to the Chancellor," Mr Avrili says. "The cut will have the positive effect of reducing inflation, but lenders are likely to expect something back. It could be worth waiting until after the Budget before committing to a mortgage, to get the full benefit."

Lenders have urged the Government to encourage home-buying for some time. Celia Rowland, at the Halifax, says: "We've done what we can to kick-start the housing market - now it's up to the Government."

Whatever happens in the Budget, everyone seems pretty sure that the competition among lenders is set to continue. Fixed rates, discounts, cashbacks and other offers are set to be part of the mortgage scene for a long time to come.

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