Personal Finance: Home loans vary widely - but the maxim is: let the borrower beware

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HOUSE PRICES are booming - or so says the Land Registry, whose figures, released this week, show quite astonishing rises in some areas, particularly the south-east of England.

True, the Land Registryfigures are not weightedin the same way as thosefrom the Halifax or Nationwide. Just adding up the prices for certain property in various areas, then dividing them by the number sold, can deliver weird results.

For example, in my area of London, prices for detached houses actually fell, according to the Land Registry. That figure is likely to result from the wide variations in types of detached properties. Even so, there is no denying the upward movement in prices overall. So faced with this scramble for homes, what are mortgage lenders doing?

One new development is so-called tracker mortgages, loans linked to base rates set by the Bank of England, usually between 1 and 1.75 per cent above it. If base rates move, so will the tracker mortgage. The aim is to offset criticism of current variable mortgage rates, which lenders have largely avoided lowering recently, despite a 0.5 per cent base rate cut.

The problem with such a mortgage right now is that there are rumours that the Bank of England is considering raising base rates again.In other words, just when you might want one of these loans, their cost is likely to rise. In contrast, having refused to lower their variable rates, lenders would find it hard to justify raising them again so quickly (or would they?).

Then there are "flexible mortgages". For example, Halifax last week weighed in with its own version, Easy Choice. The trouble is, it is about as flexible as a lump of concrete. Yes, you can overpay and underpay your mortgage without penalty. But you cannot make lump sum withdrawals for the first 12 months.

More significantly, its interest is worked out on an annual basis, so it is more expensive than those where interest is calculated daily.

Then there is Egg, which this week weighed in with the cheapest variable rate - 5.59 per cent - currently on the market. Egg's mortgage meets most of the flexibility criteria one would expect. And existing borrowers will benefit from this rate cut.

But here too, we should not be carried away. It may be the cheapest, but Standard Life Bank's rates, at 5.88 per cent, are not far behind. Moreover, with Standard Life you get a 1.5 per cent discount in the first six months of your loan, equivalent to being as cheap as Egg for the first 18 months. Standard Life will also refund the valuation fee, worth about pounds 250-pounds 300. By contrast, if you do business with Egg by phone, you are charged pounds 199 for the privilege.

So a lot of this is marketing hype, as lenders claw back with one hand what they give with the other. The lesson for anyone after a new loan is to be more careful than ever, or they will end with a clunker of a mortgage, the last thing anyone needs.

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