Mortgage - changes ahead?
Borrowers should be aware of some of the changes taking place in the mortgage industry after two building societies recently implemented rises in their SVR (standard variable rate). As the last Bank of England interest rate has remained steady for over 11 months, and especially as the last move was downwards, this has angered and surprised their customers.
The two societies are N&P (Norwich and Peterborough) and the Nottingham. Borrowers with either of these societies whose mortgage is linked to the SVR will now face increased monthly repayments.
Increase In Interest Rates On A Mortgage
N&P's SVR rose from 6.3% to 6.49% and Nottingham's went up from 6.39% to 6.49%. Both societies were defensive regarding the move, as their borrowers are still benefiting from a (marginally) lower SVR than the typical 6.59%!
Many brokers were unimpressed by the move, with the Nottingham being the most criticised due to the fact that in the first months of 2006 it was offering a 3 year discount at 4.3%. This was leading the best buy tables for mortgages for a number of weeks. It is felt that there are people who chose the three-year discount plan in the last month or so and will only just be completing the deal. To have this increase dropped on them, when interest rates have remained steady, is appalling. If they are locked in to the loan for 36 months, they are stuck with it.
In defence, a spokesman from the Nottingham Building Society claimed that, to an average borrower, the rise in payment would be less than $2 per week. They have written to applicants and current borrowers informing them of the situation and believe that they continue to offer members great value.
The majority of N&P's variable deals will not be affected as they are trackers, linked to base rate.
If you are part way through a discounted term with either society, there is not a lot you can do to save the situation, as early redemption charges will apply if you switch lenders. Obviously if you are nearing the end of a discount period you should re-mortgage.
Cashback Deals - Higher Interest Rates
The once-popular cashback deals are not seen as such a great deal any more. They usually tie the borrower into paying a higher interest rate and they may apply the much higher standard rate for up to 18 months if they don't want to repay the cash. These mortgages frequently carry larger fees too.
One of the banks who offer "help with costs" on most of its deals is the Northern Rock. They have recently changed the terms of their offer. The previous $1000 offer (repayable if they defected to an alternative deal within 42 months) has been reduced to $750. However, this is an improved deal for borrowers who remortgage to Northern Rock from another lender. The cash is now only repayable if the loan is redeemed to transfer to a new Northern Rock deal within 24 months.
The 42 month repayment period will still apply to purchase and mortgage-review clients, if they switch deals. This means that if you have a $150,000 two year fixed rate 4.79% deal you would pay an additional $4,050 in mortgage repayments should you decide to pay their 6.59% standard variable rate for 18 months, in preference to repaying the $750 cashback. As one broker said "Northern Rock is punishing loyal customers with this move. If you are an existing customer remortgaging with them and you take the help with costs option, you will be tied in for three-and-a-half years, yet new remortgage customers switching from another lender are only tied in for two."
The cost of remortgaging to another of the bank's deal exceeds the $750 cashback and so doesn't even cover the costs of staying with them.
Choose The Right Deal For Your Mortgage
The pressure on mortgage borrowers is a result of growing competition within the business banking sector. Our advice is to take care to choose the right deal and regularly update the situation to ensure you're not being "ripped-off".Go on-line and find a mortgage broker who'll know precisely what's going on in the mortgage market and who can compare all the deals on offer and find the right one for you. Before it's too late!
The information in this article is correct as at 18th July 2006
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