Beware of the latest fixed-rate mortgages
As we are all aware, over the last week or so, more than half of the mortgage products on the market have been withdrawn, but they are gradually appearing again, at much higher rates.
As it stands, the average seems to be around 6% with some even higher and for BTL the all important ‘Stress Test’ has been raised to as much as 140% of the applicable rate (the stress test measures if the rent will cover an interest rate that is as much as 1.4x the agreed rate) which is making it almost impossible for anyone with a LTV above 50% to remortgage.
I have noticed one other alarming factor, that I believe you should be aware of. Those of you looking for a fixed deal, may have noticed that 5 year fixed rates are more often than not, cheaper than 2 year rates, which indicates that lenders believe that they will benefit from falling rates in years 3,4 & 5 perhaps.
However, some lenders have quietly covered themselves, to ensure that you do not benefit in the short term, with a fixed rate and then leave when the market swings in favour of the lenders, but what exactly have they done.
I have been looking around to keep track of what is going on, as I do, and when I checked the fees chargeable by ‘The Mortgage Works’ I noticed something alarming.
In the past, their ‘early repayment charge’ which was a fee for settling your mortgage before the agreed period, or exceeding any agreed overpayments, (they normally allow you to pay between 5% and 10% over your agreed payment) was 2%
This has now been increased to a maximum of 7% for overpayments and 5% for early settlement!
That is a horrendous figure!
I obviously don’t have time to check the small-print for every deal on the market, but I would hazard a guess the TMW are not the only lender to do this. Therefore, if you are thinking to re-fix your mortgage, or you have received an offer recently, I would ensure that you establish exactly what they early repayment charge is for your particular lender.
In the case of TMW, a 5% early repayment charge on a £250,000 mortgage (for example if you need to sell within 5 years) could be a whopping £12,500. In some cases, lenders used to reduce their fee as you had less time before the fixed rate expired, but it seems that in this case, it applies for the entire duration of the deal, which is very unethical.
I can’t say whether you are better off to take your chances with the variable rate at this time, but one thing is for certain, check your mortgage offer very carefully and if in doubt, do not proceed!