Why borrowing less than 75% of the price of your property will save you money.
In this year’s mortgage market it’s not the level of your income that’s going to impress your lender, it’s the size of your deposit or equity. And those flashing more than 25% are privy to an exclusive world where lenders are vying for your business and launching new competitive deals to tempt you.
It’s not yet the case that if you walk into a high street bank as a low-risk remortgagor you are shepherded away from the hoi polloi into a cushioned suite with lackeys and biscuits and tea (while the five percenters queue outside in the cold).
Not quite, but it’s getting there.
Lenders have nailed their colours to the mast, wanting low-risk clients with deposits of at least 25%, and they are prepared to price for them. The last few weeks have seen a rash of rate drops in the 75% LTV and below market – the real VIPs are actually those with a 40% deposit, and they can get the sweetest deals around.
But at 75% there are some cracking products, not least an exclusive offer from Market Harborough Building Society (MHBS) that is exclusive to Fool.co.uk.
What are the facts?
It’s a two-year fixed rate for remortgagors from MHBS at 5.75% available up to 75% LTV, after which you revert to the lender’s SVR at 7.15% (at which point you are free to switch).
You have to pay a modest fee of £595 plus a £95 administration fee – so really a fee of £690 which is still decent. (But watch out for lenders splitting fees like this. A few do it and it makes them look cheaper than others). And the valuation fee is refunded on completion for the loan.
What’s so good about it? The rate is really low at this level and so is the fee. In other words, it’s a very competitive product indeed.
And what’s the catch? There isn’t one really for remortgagors with 25% equity who want a two-year fix, although the Society is small and this tranche of money will be extremely limited so it may not hang around for long.
Also it’s only available up to £500k so no good for jumbo mortgages. And, of course, as a remortgage deal it’s not available to first-time buyers.
If you’re interested in this mortgage, call our special hotline on 0800 953 0609 and get advice from a broker.
What else is around?
Comparing like-for-like the MHBS product stands up well against competitors.
Halifax has two-year fixed rate at just 4.89% up to 75% LTV. A great rate but it comes with a pricey fee of 2.5% of the loan amount – that’s £2,500 on a £100,000 mortgage and £5,000 on a £200,000 loan.
For a smaller, but not insignificant fee of 1.5%, the lender will offer a two-year fixed rate at 5.74%, which is more comparable with the Market Harborough deal. As ever, you need to work out the total cost over two years looking at the monthly repayments on your size of mortgage and adding the fee.
For a set fee of £995, Halifax’s two-year fixed rate jumps to 6.19%, not as competitive as MHBS.
Nationwide offers a two-year fix to remortgagors with a slightly lower fee at £599 but the rate is a touch higher at 5.88%. Still it’s a comparable offering from the country’s largest building society.
Britannia’s Building Society may offer some competition to MHBS. It has a significantly lower rate on its two-year fix at 5.44% with a higher fee of £999. For some people this could be a better deal based on total cost.
However, one lender has the edge on MHBS in my view. Yorkshire Building Society has three two-year fixed rates up to 75% LTV and all of them offer excellent value. The first is the same as the low rate Halifax deal already mentioned – 4.89% with a 2.5% fee. The second offers an extremely low rate of 5.29% with a fee of £995.
But the most comparable deal with the Market Harborough fixed rate is the YBS two-year fix at 5.59% with a fee of £495 – cheaper fee and cheaper rate.
What if you don’t want to fix?
If you don’t want to fix your rate, then good for you. In my view variable rates are the way to go at the moment with average fixed rates still priced higher, and expectations that Base Rate could fall, if not in the next few months, then probably in the next year.
The variable rates around (including trackers, discounted trackers and discounted variables) come with competitive rates and low fees. Some even carry no arrangement fees so are well worth considering.
As you can see, if you are lucky enough to have 25% equity or deposit, the mortgage market isn’t as challenging as it might appear to be. But for those people with a five or 10% deposit (read first-time buyers), it’s a whole other story.
More: Who Is Helping First Time Buyers?
> Compare mortgages via Fool.co.uk
