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Borrowers Shopping For Mortgages Shun High Fees Of Short-term Deals

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http://business.timesonline.co.uk/tol/busi...icle3613688.ece

The Times

March 25, 2008

Borrowers shopping for mortgages shun high fees of short-term deals

Grainne Gilmore, Economics Correspondent

Two-year fixed-rate mortgage deals are losing popularity as the rising cost of mortgages means that even the most creditworthy of borrowers will have to pay thousands extra to renew.

Figures calculated for The Times show that a borrower who has 25 per cent equity in their home and a £150,000 mortgage with Halifax will pay more than £3,300 extra over two years if they choose the lowest-rate two-year fix available from the lender today.

Rising interest rates and a tightening of mortgage deals — a byproduct of the credit crunch — mean that all banks are offering less generous deals. Borrowers at Cheltenham & Gloucester will pay more than £3,400 extra for a new two-year fix.

Experts say that this is prompting many of the 1.4 million homeowners coming to the end of fixed-rate deals this year to look at longer fixes or tracker loans that move in line with the base rate.

Ray Boulger, of John Charcol, the mortgage broker, said: “Two-year fixes will be less popular as arguments for not taking one out outweigh those in favour. People will want to wait until the credit crunch subsides and interest rates fall further.”

Mortgage lenders, who have been able to secure funding only at high rates of interest in the wake of the credit crunch, have been passing rate rises on to borrowers in an effort to protect their margins.

In addition, mortgage arrangement fees have risen sharply.

Two years ago, it cost about £400 to set up a two-year fixed-rate deal. Now an arrangement fee of £1,000 or more is not unusual.

First Direct offers a two-year fix at 4.75 per cent, but the fee is £1,498. Alliance & Leicester's two-year fix pegged at 4.99 per cent has an arrangement fee of 2 per cent of the mortgage.

A homeowner with a home loan of £320,000 will pay a fee of £6,400.

A record proportion of borrowers took out tracker deals in January, according to the most recent figures from the Council of Mortgage Lenders.

A third of mortgage deals were trackers, the highest figure since the CML started to compile tracker data in 2005. The number of fixed-rate deals slumped to 57 per cent, down from 64 per cent in December. This is the lowest rate since June 2005.

David Hollingworth, of London & Country, the mortgage broker, said: “Longer-term mortgages are potentially a viable solution, and we could see the popularity of two-year fixes wane.”

Arrangement fees and interest rates on three and five-year fixed-rate deals are often similar to two-year deals.

Louise Cuming, of Moneysupermarket.com, the online price comparison service that compiled the figures, said: “Five-year fixed rates are becoming a lot more popular. This tends to be a good compromise, as borrowers are not tied in for too long.”

Mr Hollingworth said: “Lenders may also start to concentrate on the three to five-year fixed-rate market to bring in longer-term business.”

Borrowers are also looking at tracker deals, since the indications are that the base rate will fall this year.

Jonathan Cornell, managing director of Hamptons Mortgages, a mortgage broker, said: “For the forseeable future, the base rate is only going one way, and that's down.”

Mr Cornell said that tracker deals had also become more expensive after the liquidity crisis. Halifax has increased the rate on its two-year tracker deal by 0.2 percentage points twice in the past two weeks.

“All deals look very expensive at the moment compared to the past five years,” Mr Cornell said.

Borrowers may be better off opting for a deal with a wait-and-see option, rather than allowing their deal to revert to their lender's expensive standard variable rate.

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Mr Cornell said that tracker deals had also become more expensive after the liquidity crisis. Halifax has increased the rate on its two-year tracker deal by 0.2 percentage points twice in the past two weeks.

This is what puts me off trackers - the bank can simply put the rate up, even if BoE rates come down.

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Surely these people are better off overall, thanks to rocketing house prices. Or maybe, and as I suspected, they were talking shit ;)

Not everyone has felt better off because house prices have gone up - I've felt poorer as the gap between where I live, and where I'd ideally like to live has grown wider. One thing that annoys me about this forum is the fact that people with mortgages are often lumped together as being greedy and out of touch with reality.

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This is what puts me off trackers - the bank can simply put the rate up, even if BoE rates come down.

Not if it's tracked to the BoE rate they can't.

What they are pointing out is that for NEW mortgages the lenders are increasing the percentage at which the mortgage will track above the BoE rate.

Mid Feb Britannia BS Lifetime Tracker products

BoE +0.49 for a £499 fee and no free valuation or legal

BoE +0.5 for £399 fee, with free valuation and conveyance

March 1st

BoE +0.49 withdrawn

BoE +0.5 £499 fee, no free valuation or legal

BoE +0.65 £399 fee, free valuation but no conveyance.

Our lifetime tracker has proved to be an excellent choice over the last six months.

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Not if it's tracked to the BoE rate they can't.

What they are pointing out is that for NEW mortgages the lenders are increasing the percentage at which the mortgage will track above the BoE rate.

Mid Feb Britannia BS Lifetime Tracker products

BoE +0.49 for a £499 fee and no free valuation or legal

BoE +0.5 for £399 fee, with free valuation and conveyance

March 1st

BoE +0.49 withdrawn

BoE +0.5 £499 fee, no free valuation or legal

BoE +0.65 £399 fee, free valuation but no conveyance.

Our lifetime tracker has proved to be an excellent choice over the last six months.

Oh right, I didn't realise that - I thought everyone on that tracker had the percentage increased. Didn't realise it was fixed for the lifetime of the tracker, but of course it makes sense once I think of it. Doh. Halifax is 1.44% above BoE at the moment, and my mortgage is too low to be worth the cost of moving, but will keep that in mind at the end of the year.

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Not everyone has felt better off because house prices have gone up - I've felt poorer as the gap between where I live, and where I'd ideally like to live has grown wider. One thing that annoys me about this forum is the fact that people with mortgages are often lumped together as being greedy and out of touch with reality.

Couldn't agree more. HPI has done us no favours, it's left us stuck in an area that we ideally would not live in long term. All because the highest we would ever dream of going is 3 times one income.

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Jonathan Cornell, managing director of Hamptons Mortgages, a mortgage broker, said: “For the forseeable future, the base rate is only going one way, and that's down.”

Are these pillocks regulated by the FSA? How can they be allowed to make such statements? There is a very real possibility that inflation is going to rise substantially and we will be in the dreaded stagflation scenario. In this case Interest Rates will rise. He should not be allowed to make such statements.

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Couldn't agree more. HPI has done us no favours, it's left us stuck in an area that we ideally would not live in long term. All because the highest we would ever dream of going is 3 times one income.

Ditto. My employer of the last 2 years is 75 miles away, all bar 2 miles of which is round the M25 and up the M40. No sensible train service. Cr8p.

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  • 298 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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