The Woolwich announced several new fixed-rate products yesterday, which herald the return of low-fee, low-rate mortgage products to the market, and are a pivotal moment in the UK’s turn from recession to recovery.
The rates, which include a two-year fixed at 3.89% available up to 70% loan-to-value, and 4.09% up to 75% loan-to-value, have an application fee of just £199, free valuation and legal work on remortgages or £200 cash back towards legal costs if using your own solicitors. Early repayment charges apply of 3% until 31/01/2012, and APR for both products is 2.8%.
They have also included a three-year fixed product at a similarly competitive rate.
That is a big departure from the glut of products currently offering headline rates with either £995 or even 2% arrangement fees and will kickstart the lending industry back into competitive pricing with more than just on-paper rate cuts.
The products are also available on new purchases and equally competitive in that space, although standard valuation and legal fees will apply on purchases.
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.
When a mortgage broker arranges a mortgage for a borrower the commission they receive (if they take the commission as opposed to a fee) is not standardised but there is however only a limited difference from lender to lender. Typically the percentage is about 0.3 to 0.35% for a residential mortgage with good credit, 0.40 to 0.45% for buy to let mortgages, and slightly higher for adverse credit applications.
Why then are several banks, one of which I won’t name but is almost entirely government owned (guess who?) is loading rates available via intermediaries by anything up to 1% against an equivalent product available through them direct? If these lenders are proposing that it costs them more to accept intermediary applications this is farcical.
They may argue that the intermediary market would simply direct too much business to them which they don’t have funds to supply. This is plausible but I think it is actually pricing intermediary products out of the market to attract business from consumers direct who can then be goat herded into higher rate products with down valuations and clandestine credit scoring, or even lower rate products with ridiculous fee’s which are more expensive in reality. Without a broker to argue the case and guide on fee’s most people will simply accept being cascaded to a higher rate without asking difficult questions, or being declined an application having paid for valuations and the like.
I want someone to actually put the question to these banks, how is this rate loading fair practice and why is it in place? Because to the educated it seems to be the intention to get mortgage advisors out of the market so that dodgy products can once again be sold in bulk. Just look at the return of long early repayment charges on market leading rates as a sign that lenders are looking for ways to lock customers into potentially crippling mortgage rates.
I wrote an article some time ago about the FSA’s proposed changes to end self-certification and fast-track mortgages; I made a big point about how this could leave many people struggling to refinance and cause trouble for the recovery of the housing market.
The FSA confirmed last week that they would take action; the press has been making similar observations to my own today about the impact any regulation could have on our recovery and those borrowers with an existing loan of this type.
But over the weekend, I had a realisation; and made a U-turn on the subject. In reality, there are few legitimate borrowers who cannot “prove” their income.
The point is that the word “proof” and its interpretation is the key detail. Almost all people can show evidence that the income they declare is broadly accurate; they may not be able to prove income in the manner that a traditional full-status mortgage would require.
For example, if you have a business from which you could take far more income than you currently do without running it into decline, that is your prerogative.
You should still be able to evidence in a suitable way that your business has the potential for you to take further income and that the loan would then be affordable.
It may not be satisfactory at your local building society now, but lenders with good product development teams will soon see how to create a new type of product to cater for this market once their appetite comes back.
So if the FSA gets this legislation right and does not dictate or define what proof consists of, then there will still be the opportunity for lenders to market products for those with non-standard income, priced above full-status products as before but simply requiring some evidence to back up that the income declared is not a total fabrication.
The FSA just need to be careful not to try and make this legislation so watertight that it chokes the housing market to death.
There have been so many new rates announced over the last two weeks it hasn’t been possible for me to talk about them all.
Suffice it to say, if you are remortgaging or buying your first or second property, rates across the board have dropped by as much as 0.3%.
Arrangement fees also seem to have reduced, with several of our broker best buy products now having arrangement fees below £600, against an average of £999 for most headline rates a few weeks ago.
Swap rates have dropped significantly since the massive drop in BBA LIBOR over the past two months; this has helped fuel cuts in fixed rates; there still seems to be a general lack of movement on rates at higher loan-to-values for borrowers looking to remortgage.
Fixed rates at 85% loan-to-value; for example, continue to sit around the 5.99% mark with little movement.
It will be interesting to see who makes the first move on this market of higher loan-to-value remortgage borrowers (if indeed there is any drop at all); it seems almost as if the pot is so big that banks are scared to dip their toe in the water in case they get swamped.
It certainly can’t be claimed that a remortgage at 85% is a greater lending risk than a purchase at the same loan-to-value, yet you could get a much better rate if you were buying at this LTV.
Mortgage Advisors will be keeping their eyes peeled for changes on these higher LTV products; hopefully, the news that interest rates are likely to remain low in the long term will help to drive swap rates down further and one of the big banks into releasing some decent remortgage rates for those with little equity.
And if you’re listening, a 95% purchase product wouldn’t go amiss either!
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.
