Banks are trying to tempt homeowners onto new deals when they come out of their current mortgage deal by making significant cuts to their rates. The average cost of a tracker loan has dropped for the third consecutive month to hit a record low of 3.5%. The average rates charged for two year fixed rates have dropped to 3.72% for people with 25% deposit being the second lowest recorded rate. Long term fixed rates have also moved down with a five year low having been achieved of 4.85%.
This decline in rates has been achieved despite swap rates which lenders use to price fixed rates edging up recently. I feel that, to an extent lenders have been forced to become more competitive due to house sales having stalled, and the criteria they now employ to underwrite mortgages making it very difficult for some people to obtain a loan. Although I believe many lenders have limited funds available, they are now struggling to get rid of what little they have, hence the Christmas sale to existing homeowners. The lenders know that by widening their net they should be able to find more existing homeowners with lots of equity and only low income multiples required making them ideal customers.
The question is, should these customers accept the bait offered by the banks if they are coming to the end of a deal or have no penalty on their mortgage? As always this depends on a number of factors. Firstly check the rate you are now on, even though it may be more expensive than the new best rates from other lenders, ensure that the cost involved in moving that can sometimes amount to thousands of pounds still makes it worthwhile. If the loan passes this test then check how long the deal is for, for example, even if your existing mortgage is charging a rate of base rate plus 2.50% for the whole of the mortgage term giving a pay rate of 3.00%, it could be more valuable than a base rate tracker with a pay rate of 2.50% for three years only. The reason for this could be because the second loan reverts to standard variable rate after three years that is almost invariably higher than tracker rates, leaving the borrower worse off overall. The only reason for accepting such a deal would be because you are desperate to cut your costs in the short term.
Recently I have been finding that many people who were thinking of moving house have decided to stay put and improve their home. They have then applied for further advances that have been offered at higher than average rates, even though their main mortgage is at a highly competitive rate the overall rate has risen. Up to now most people have bitten the bullet and stayed put, however, with the new deals there may be just enough in it for them to remortgage. As always everyone is different and it is worthwhile taking advice in this area from an Independent Financial Adviser who specialises in mortgages. Kieron Bassett Financial Services has two Independent Financial Advisers. Contact us on (01524) 832057 or via e-mail, info@kieronbassett.com.
Kieron Bassett CertPFS
15th November 2010
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