Pay the penalties but save money!
Elizabeth Coleman from the The Sunday Times recently reported that Homeowners who locked into expensive fixed-rate mortgages a few months ago could be thousands of pounds better off by exiting early and paying penalties. Advisers are urging borrowers who locked into deals at the height of the credit crunch to break their contract, despite exit charges and rising remortgage fees. Borrowers with a 25% deposit who took out Nationwide’s two-year fix at 6.25% on a £200,000 interest-only loan in June could save £4,489 if they switched to Cheltenham & Gloucester’s 4.79% tracker.
That is even after forking out Nationwide’s 1.5% early redemption charge and C&G’s £2,094 upfront fee, according to independent broker Savills Private Finance.
Those who have a 40% deposit could do even better by applying for HSBC’s market-leading 3.99% lifetime tracker with a £799 fee — saving £8.900 on the mortgage. Swap rates, used to price fixed-rate loans, have fallen to 3.24% from 6.45% five months ago. That has brought down the rates offered to consumers. The best two-year fix, from Abbey, is now 4.79%, compared with 5.74% from Britannia a month ago. The best tracker is HSBC’s lifetime deal at 3.99%, compared with 5.59% from Woolwich last month, according to data firm Moneyfacts. Les Jacobs, of Mortgage Monitor, the broker, said: “We’re seeing many frustrated homeowners who locked into deals in search of stability, but are now paying over the odds. “Review — and you can yield huge savings.” With Bank rate expected to come down again next month, after this month’s 1.5 percentage point cut, trackers are in demand, but are difficult to find. A mere 30 two-year trackers are on offer today compared with 68 a month ago. Nationwide, the UK’s biggest building society, is not offering any at all despite cutting fixed rates last week preventing new borrowers taking advantage of further interest rate falls. It said it was reviewing its range and would re-enter the market “in due course”. However, you can still save money by moving from one fixed rate to another as David Roberts, 40, of Chigwell, Essex, found. The print company owner had been paying the Woolwich 5.84% since November on his £400,000 mortgage, but has moved to Abbey’s 4.49% rate. He stands to save £5,000 over the two-year term of the loan, notwithstanding his old lender’s 1% early payment penalty and Abbey’s £995 fee. He said: “When I was looking to remortgage at the end of last year the Woolwich deal was the best but when our broker suggested we switch and pay 1.35% less we jumped at the chance.” n Scottish Widows has become the latest lender to launch a rate that tracks above, not below, its standard variable rate.
Melanie Bien at Savills said it signalled lenders were becoming less inclined to peg variable rate deals to Bank rate.