The mortgage market is going through a major shake-up at present, which should encourage borrowers to review their existing loans. And people looking to buy for the first time may find additional and more competitive mortgage products are now on the market.
While this may sound like good news, there is also bad news. One of the UK’s largest mortgage lenders, the Skipton Building Society, has just raised its standard variable rate substantially – from 3.5% to 4.95%. This increases repayments on an interest only mortgage rise by about 40%.
The Skipton is in a difficult trading position currently and has been badly hit by the level of competition for savings from overseas banks, UK government-supported banks and the UK Government’s National Savings & Investments. As well as raising interest rates, it is cutting about 90 jobs – though staff at its Homeloan Management (HML) subsidiary in Londonderry are unaffected.
Nationwide, the largest building society, is in a much stronger position, but it is also raising the SVR on some products that are higher risk for the society – including some mortgages where income was self-certified.
Skipton partly justifies its hike by explaining that its SVR mortgage rates were near the top of the best buy league tables. But they are certainly now some way from the best in the market for either new loans or for existing borrowers: quoted SVRs can differ for new and existing loans.
The Nationwide and its recently acquired subsidiaries the Cheshire and Derbyshire building societies all charge just 2.50% to existing borrowers on SVRs, as does the Cheltenham & Gloucester – part of the Lloyds Group. Bank of Ireland is nearly as competitive at 2.99%. The lowest variable rates available to new customers start at 2.58% from First Direct and are shown in the accompanying best buy tables.
Moneyfacts suggests that borrowers consider carefully the SVR they are now on. “Some borrowers on SVR may have paid more than double for the same mortgage than if they had been with a different lender,” says Moneyfacts’ Michelle Slade. But, she adds, those paying the highest rates may have been forced into doing so because they have insufficient equity in the property to take advantage of the lowest SVR rates.
Despite this, the market is also easing in terms of obtaining higher levels of loans to value (LTV), which will particularly assist first time buyers. According to analysis from Moneysupermarket.com, there has been a 22% increase in mortgages available for an 85% LTV, and an 11% increase in those available for 90% LTV since the beginning of the year. Interest rates have also fallen on mortgages with high LTVs.
Hannah-Mercedes Skenfield, mortgages channel manager at moneysupermarket.com, says: “Whilst rates are obviously lower for those with a higher cash deposit, it is encouraging to see rates starting to drop across all LTV products.” She warns, though, that Skipton’s hike in interest rates could lead to other lenders doing the same.
With the risk of SVRs going up, more people will consider either fixed rate or tracker mortgages. Woolwich (owned by Barclays) has just cut its tracker rate to 2.63%, which is 2.13% over base rate for life. And the Post Office – whose products are supplied by Bank of Ireland – is offering a 3.49% tracker (2.99% over base rate) for those with a 20% deposit.
However, the rates charged on SVRs have little relevance for many seeking a new mortgage. “Most lenders don’t allow new borrowers to start off on SVR and the few that do have a high SVR,” explains Ray Boulger, of John Charcol mortgage brokers.
“Therefore the choice is primarily between fixed and tracker. A few lenders offer a discount off their SVR, but these deals are uncompetitive compared with trackers. Trackers offer better value, particularly lifetime trackers, than fixed rates at the moment because I expect bank rate to remain below 2.5% for at least three years in view of the dire state of the UK economy and the significant differential of 1 to 2.5% between the initial rate on a tracker and a fixed rate.”
Boulger adds that where borrowers do find fixed rates attractive to provide certainty on future outgoings, long term fixed rates make much more sense than a short term fixed rate deal.
Q. I have paid several hundred pounds to a company that told me it could clear my old credit card debts, as these are legally unenforceable. I am now worried that I have been ripped-off.
A. You probably have been. The Department of Enterprise, Trade and Investment issued a warning in December about this scam. It warned that people were phoning round, cold calling, offering to wipe out old credit card debts in return for an advance fee of £1,000. Without knowing the detail of your credit card contracts it is not in a position to know whether your debt is legally collectable. There is an ongoing legal question of whether credit card companies can collect old debts if they no longer have a copy of the contract with their customers. But it is unlikely that the debt can be written-off unless there are clear grounds for believing that there is an error in the way the debt was calculated; that the person billed is actually liable for the debt; or that the bill is for a service, such as payment protection insurance, that was mis-sold. If you paid the fee to the caller by credit card or by Visa debit card you should request a chargeback to have the payment cancelled and your account refunded.