Another week, another seven days of chaos and confusion in the money markets. And none of it makes life simple for ordinary savers and investors.
So just what SHOULD mortgage borrowers be doing as interest rates tumble. I wish that it were that simple, but it’s a puzzling business for ordinary consumers watching interest rate movements in credit crunch Britain.
Cheers as the Bank of England slashed Base Rate to 3 per cent from 4.5 on the sixth of November, were quickly followed by jeers as most of the big mortgage lenders did precisely …. nothing.
We’ve all got used to a half per cent cut turning into a measly .2 or .3 of a per cent by the time it reaches us. Adding insult to injury, anyone who also has savings will find the banks only too quick to slash the rate on their savings.
The best advice for those looking for a new deal is to sit tight … for a while at least. Those of you lucky enough to be on a tracker rate (where the interest rate on your mortgage is pegged at, for example, 1% over base rate) are lucky. Your mortgage will automatically be following base rate down by 1.5% next month. That’s a nice early Christmas present to go with the half a per cent cut you got in November.
Those on standard variable rates have to trust the generosity of their lenders, and hope that they play fair and reduce their rate accordingly. All I can say to that is GOOD LUCK. The SVR is the rate your lender sticks you on once your fix or tracker lapses … it’s a kind of inertia selling, and the banks know most of us are rubbish about checking on this sort of thing. Those on the SVR tend to be the least financially aware - and so they tend to get the worst financial deal of all.
That meant that even after the base rate cut to 3%, the average SVR was 6.79% … more than twice the base rate, an astonishing markup for the banks. Admittedly, after Alastair Darling pulled the banks in and demanded they pass the cuts on, Halifax, Nationwide, Royal Bank of Scotland and NatWest, all said they would be reducing their standard variable rate by 1.5 per cent.
However, that means you’re STILL only getting 5.29%, which is a pretty rubbish rate when base is 3%. You SHOULD be looking for a better deal. But again, it’s been tough to find one. The lenders have been pulling most of the tracker deals - you can see why, as a tracker automatically cuts the bank’s margin as rates fall. And as for fixed deals … well even a day after the cut in interest rates, the cheapest fix was STILL around 5.25%. Those of us who are already on fixed rates can find the fall in interest rates a bittersweet experience. You are, relatively at least, losing out.
The BIG advantage of fixed rates is certainty of course. If rates go up, you’re protected. If rates fall, you at least have the security of knowing what you’ll be paying each month. But of course, we’re most of us greedy. And that lovely secure fixed rate can look a bit ropey when you’re still paying 6 per cent.
However, those on a fix should savour the security, and look forward to better deals in the coming months. Rates ARE going to start to fall as credit frees up, as free up it must. Beware though. The fall in house prices may have reduced your equity and thus increased the loan to value of your home. So if you had a £100,000 mortgage on a £200,000 home, but your property value has dropped to £150,000, then your LTV has risen from 50% to 66%, and that could mean a higher interest rate on your new mortgage.
If you can wait do. And while you’re waiting, here is some groundwork you can be doing to get the best deal. Make sure your credit history is rock solid before you apply. Check it with Experian or one of the other credit agencies and act to repair any problems. I’ll have more on repairing dodgy credit in a couple of weeks. Make sure you’re on the electoral roll too … it all helps.
Save! Ensure you can put down the biggest possible deposit. You’ll get a better rate, and you have a better chance of getting a mortgage full stop. Don’t change your job now if you can help it. A thick sheaf of payslips from the same employer will impress the lenders, as will plenty of healthy looking bank statements. And don’t move either … a long period at the same address is a big tick in the lending box. This last bit of advice may ring a bit hollow if you’re looking for the mortgage BECAUSE you’re moving of course!
Some of the best deals are back with brokers now … that wasn’t the case a month or two back. Get a broker who can sell from the whole market (not all of them do). Read the small print on the terms and conditions they send you. Read the small print on arrangement fees, redemption penalties, terms of the mortgage, the lot. Which is better, 6% but no arrangement fee, or 5% with a £1000 arrangement fee? Not sure? Then you haven’t done enough research!
Don’t ignore your current lender. You know what - they might just negotiate rather than lose you. Though don’t count on it, some lenders are muleishly stupid and shortsighted on this stuff. But most of all … keep checking! Deals are changing by the day and some aren’t around very long. A regular check on the best buy tables on moneysupermarket.com, moneyfacts.co.uk or godirect.co.uk will keep you in the picture.
Credit checks: Experian, Equifax
Mortgage rates: Moneyfacts, Go Direct, Moneysuperrmarket
Tags: Mortgage rate advice, Mortgage rate advice article, Mortgage rate advice, Mortgage rate advice article, Mortgages, mortgage, rates, personal financial advice
