As recently as last September lenders were offering fixed rate deals at around 6% which looked attractive at the time. However, rates changed rapidly as fears of inflation evaporated and the Bank of England cut the Base rate with unexpected severity in October to combat the Credit crunch.
The Bank of England continued to implement cuts and the Base Rate remains at a historic low. This benefits greatly those with mortgages who are fortunate enough to hold Bank Base Rate Tracker deals but perhaps leaving those who took the aforementioned fixed rates to reflect on their misfortune.
All may not be lost…
Normally we would recommend our clients begin to consider their mortgage options approximately 12 weeks before the expiry of their current deal. With the dramatic change in rates an opportunity has arisen we have not before encountered. It offers those who fixed their mortgage when rates were higher, the option to consider buying their way out of their existing deal and remortgaging to a lower rate.
The difference between fixed rates from less than a year ago to those available today means that for many borrowers paying the Early Repayment Charge to leave their current deal, will save them money - not only on a monthly basis but also over the term of their loan, even when including the fees.
For example, using a property value of £550,000 and a mortgage of £350,000 on an Interest Only basis, if a client has a fixed rate of 6% with 4 years to run the total amount payable over that period would be £84,000 (£350,000 x 6% x 4) and the monthly payment would be £1,750. We will assume a penalty of 3% of the mortgage amount (£10,500) and new fees of £1,500 and add these fees to the mortgage amount so as not to incur any upfront costs.
We currently have a 5 year fixed rate at 4.49%; adding the costs to our £350,000, the new mortgage amount would be £362,000. At 4.49% the monthly cost would be £1,354.48 and the total cost over the 4 years would be £65,015.04. This saves the client a total of £6,984.96 over the previous scheme and reduces their monthly payment by nearly £400 for the four year period and gives an additional year at a currently very competitive rate.
Reduce the Debt
At a time when pay freezes and even cuts are commonplace, an increase in disposable income will certainly be welcome, whether this is as a result of falling rates or the action detailed above. Borrowers should also consider the longer term benefits of using the extra funds to reduce their overall mortgage debt, this would save them interest over the course of their mortgage and help to build equity. As house prices have fallen, many borrowers have found that they do not qualify for the more favourable mortgage rates, increasing equity by reducing mortgage debt could well be to their advantage when they come to search for their next deal.
Mortgage Availability
Much has been written about the lack of availability of mortgages. Whilst it is true that the number of schemes and for that matter the number of lenders has reduced considerably, we are still able to find the right deal for the majority of our clients. We have placed mortgages of late for first time buyers, arranged remortgages for the self employed on a Self Certification basis and continue to see an increase in our Equity Release (Lifetime Mortgage) business. We are using Private Banks to tailor deals for clients and remain active in the Buy to Let market.
Lenders are continually reviewing rates and lending criteria which can be frustrating for individuals who are making their own mortgage arrangements. Vantis Mortgage services can remove the stress and frustration from the process and ensure clients receive a first class service.
Your home may be repossessed if you do not keep up repayments on your mortgage.
4.49% rate for illustrative purposes is Fixed until 30/6/14 then 4.49% variable. Free valuation and free mortgage transfer service, booking fee of £199, arrangement fee of £800, 4.7% APR.
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