Shop for the rate drop;Personal Finance
Phil Revell reports.
Mortgage arrangements were never simple. But there was a time when people had at least a vague idea what they were getting into. Twenty-five years, at an interest rate which was headlined on News at Ten. Not any more.
Banks, insurance companies, and even supermarkets have got in on the act and the range of mortgage types and interest rates is bewildering. Fixed rates, cashback offers and discount deals have made the marketplace genuinely competitive and this summer is likely to see the launch of even more deals as lenders vie with each other for your business.
And that is definitely the way to see it. Mortgage-hunters should not be anxious supplicants, but canny consumers, seeking out the best deal. The place to start is the standard variable rate, the flagship interest level which is tied to the Bank of England's interest rates.
Changes in the Bank of England's base rate used to produce an instant and uniform reaction from the high street lenders. But standard rates can now differ by as much as 1.5 per cent.
Welsh building society The Principality came top in a Financial Times survey of more than 50 societies last year. The survey identified the best rates over two, five and ten-year periods, giving points to the best performers in each category. The Principality scored maximum points but some well-known names fared less well, with the Halifax ranked 13th and Abbey National 23rd.
Fixed rates offer an escape route from the interest rate switchback and some security for those who need to protect themselves from rate increases.
At present they are typically 1 per cent cheaper over a full-term mortgage. But interest rates are relatively high this spring and borrowers opting for a fixed-rate mortgage could lose if Britain enters the Exchange Rate Mechanism and links its interest rates to lower European rates.
Discount schemes give the buyer a low interest rate mortgage or a cashback payment at the start of the deal - or sometimes a combination of both. Independent financial advisers David Williams of Northampton specialise in assisting teachers, and following their advice a Midlands teacher opted for a discounted mortgage when he re-mortgaged earlier this year.
From a standard variable rate mortgage with the Nationwide Building Society he moved to a discount deal with the Hinckley and Rugby which netted him a pound;10,000-plus cashback payment. Hinckley and Rugby also paid for the survey and the legal fees which helped to offset the pound;250 arrangement fee.
Like most of these schemes it means staying with the society for five years, says adviser David Knight of David Williams: "But after five years and a day our client could move societies again, perhaps to another discount scheme, with no penalties whatsoever.
"We have clients who have re-mortgaged several times, saving thousands of pounds each time," he says.
Smaller building societies can often offer more flexibility, a point made by Hugh Nichols at the Teachers Building Society. It is easy to make offers from a high base rate, says Mr Nicholls. "We are flexible and our rates are attractive." The Teachers Building Society has no branches but it does have a network of regional representatives. unlike some of the bigger societies, the TBS is willing to work out a budget with applicants, instead of relying on the earnings multiplier, a blunt instrument which takes no account of spending patterns.
David Williams, Independent Financial Advisers: 01604 621302. Teachers Building Society: 0800 378669