The Woolwich has responded to criticism around their stepped tracker rate, which, with a current headline rate of 1.98%, is one of the lowest rates available in the market.
I commented that the product was restricted to mortgages between £200K and £500K, severely limiting its market, when I announced the new rate here a couple of weeks ago. These restrictions have ceased as of today. The product is now available for loans between £5K and £1 Million.
Woolwich has not chosen to address the lengthy tie-in for five years with a 2% early repayment charge though, which could make the product very costly in the long term.
Instead, they have released a new lifetime tracker at the Bank of England Base Rate +2.29% with a £999 application fee available up to 70% loan to value, or at +2.69% with no fee again to 70% loan to value. The new products have early repayment charges of 1% for two years, making them much more favourable for some borrowers, but crucially both allow you to switch to a later fix without penalty if desired.
Both products would have a valuation fee of £295 for a purchase at 70% loan to value, with a mortgage of £100K and a lender Conveyancing fee of £126, giving an APR of 2.9% and 3.3%, respectively.
As usual, always read the separate Key Facts Illustration before deciding on a mortgage product, and to speak to a mortgage advisor, call 0345 4594490.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
We do not usually charge a fee for mortgage advice, although you may pay up to 1.5% of the loan amount. Some buy-to-let and commercial loans are not regulated by the Financial Services Authority.
The Nationwide Building Society has just released its latest house price indices today, which for the first time since the beginning of the credit crunch, show that year-on-year house price inflation is now static at 0.0% change from September 2008.
That indicates the average house value has recovered any losses since this time last year, as prices continue to rise month on month. Monthly change is down slightly at 0.9% from 1.4% in August. It leaves the average drop since the 2007 peak at 13.5%, some way off the 40% drops expected by pundits until recently.
The news comes in a week where lenders have continued to announce reductions in interest rates on products up to 75% loan to value, with Nationwide themselves releasing a raft of new rates yesterday, of which there were too many for me to go into detail, more news will be available this week.
In Q&A, we take a look at some of the questions mortgage advisers deal with regularly.
Question; what are the pitfalls and benefits of an interest-only mortgage?
They say life is all about risk; this question is a prime example.
If you want the certainty that your mortgage is repaid in full (providing you keep up your payments), then you should take a repayment mortgage.
However, if the cost is too high in the short term, you could take an interest-only mortgage and move to a repayment mortgage later, although you should be aware that the interest paid will be dead money and not reduce your debt.
If you take an interest-only mortgage in the long term, you are gambling that by investing wisely, you can outperform mortgage interest rates with your investments, producing a surplus by the end of the mortgage.
However, if your investment does not perform as planned, there will be a shortfall which you will have to find elsewhere at the end of the term.
But your investment must also outperform mortgage interest rates over the full loan balance; and the entire term.
Whereas if you take a repayment mortgage, the capital part of your payment would gradually reduce the interest element, so like for like, you will repay more interest over the term on an interest-only basis too.
Also, income earned from investments may be subject to further taxation, which increases the risks of shortfalls attached to interest-only loans.
That means interest-only lending on people’s primary residence is considered high risk and is harder to arrange.
On buy-to-let loans, interest only is commonplace. The reduced monthly payments give landlords more breathing space if a tenant fails to pay; allowing for the faster accrual of additional funds for other purchases.
Alliance & Leicester announced further rate reductions yesterday on their 75% loan to value two-year fixed rates for new purchases.
The new product, with a £995 arrangement fee and a fixed rate of 4.53%, sits alongside their 4.48% product with a 1% arrangement fee.
The new rate brings them into line with rates from Abbey, but this product could benefit those who have recently gone self-employed or started a business; Alliance & Leicester require only one year of accounts minimum against two from Abbey. It also has a free valuation, much like Abbey’s three-year fix at the same rate.
The move continues the trend of lenders moving their products down to a similar baseline, but with no one currently undercutting the rest of the market, unlike what we have seen with variable rates from HSBC and Woolwich, although; swap rates have not dropped in the same fashion as Three-Month LIBOR which fuelled the reduction in variable rates.
The new rates have an APR of 5.1%, and the reversion rate currently stands at 4.99%. Early repayment charges are 3% of the loan until 31/12/2011, and the lender’s Conveyancing fee is typically £189.
Always consult the Key Facts Illustration before deciding on a mortgage product and seek independent advice. To speak to a mortgage advisor, call 0845 4594490.
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