With retail price inflation at over 4%, a mortgage rate of 6% is cheap. Despite the credit crunch, there’s enough competition in the market to keep rates low. But only go looking if you have a first-class proposition.
Woolwich, the mortgage lending arm of Barclays, is offering a 10-year fixed rate mortgage at 5.59%. If you can stomach the initial fees of £1,379 and expect inflation to stay at around its current level, this is a bargain.
Plenty of other lenders offer rates of under 6% on two or three year fixed rate loans, including Nationwide and Abbey, both up to 75% Loan-To-Value ratios and both with fees under £1,000.
Forget it unless you have a decent deposit
So if you need to remortgage, have over 25% equity in your home and do not want to borrow too big a multiple of your earnings, the situation isn’t at all bad. But if you need to borrow 90% or more of the value, have a poor credit rating or want to borrow five times your income, you will struggle to find a loan at much under 7%.
Complain as much as you like, but that’s how it should be in the mortgage lending market. Low-risk borrowers should pay less for their loans. It was only during the property and mortgage madness of 2005-7 that common sense went out of the window and lenders offered too much money too cheaply to many higher-risk borrowers.
The only real problem facing borrowers today is that some of the big lenders are no longer offering many of their best loans via mortgage brokers. The big banks, which have access to lots of cheap money, have some excellent deals but are restricting many of them to their own customers or to people applying through their branches. In effect, they are using their mortgage deals to try to attract new customers for their bank, and for this to work they have to cut out the brokers.
Go direct to check for better deals
The brokers are squealing and privately threaten dark revenges, but the banks know they have the whip hand and are likely to do so for a good while yet. ‘Whole of market’ brokers who don’t charge you a fee get a commission from lenders and if the lenders don’t pay, the broker won’t recommend them. And even fee-charging brokers often aren’t allowed to introduce new borrowers to the banks - you have to apply direct.
Worse news for borrowers is that the mortgage search engines on most comparison sites don’t include the ‘direct deals’ you can only get direct from the banks, so they’re no longer a reliable source of mortgage pricing information. HSBC, First Direct and the Post Office are three lenders with good 95% LTV deals at under 6% you won’t find on these sites.
So far, these exclusive deals haven’t dented brokers’ share of the mortgage market, but this may reflect the rising number of sub-prime borrowers (especially soon-to-be-ex Northern Rock borrowers) using brokers to secure a lifeline deal and avoid 7%-plus interest rates.
Start early and do your homework
Researching a mortgage deal has become a more complicated exercise. Make sure you start early enough to track down a money-saving deal.
Remortgages step by step
• Start researching the market about 12 weeks before your current deal expires.
• Ask your current lender what terms they will offer on a remortgage on a fixed-rate and tracker basis.
• Ask your bank what terms they will offer you on a remortgage.
• Contact a whole-of-market mortgage broker, explain your position and ask them to advise you on the best available offers on fixed rate and tracker deals.
• If your equity is below 20%, consider using some savings to reduce the amount you need to borrow on remortgage to 80% or less in order to qualify for the best deals (a few super-deals are on offer for LTVs under 60%).
• When you are confident you can get a better deal elsewhere, contact your current lender again and ask them if they will match the other offer you’ve got.
• If you believe your financial situation will improve substantially in the next year or two, go for a short-term deal at a high interest rate with no exit penalties rather than a longer-term deal with penalties.
• If you have substantial savings, consider an offset mortgage to benefit from lower net repayment costs and more flexibility.
