Type: Fixed-rate stepped mortgage
Fixed term: Until May 5, 2011
Fixed rate: 4.99% in year one, 5.69% in year two, 6.39% in year three
Minimum loan: £6,000
Maximum loan: Up to 90% of valuation subject to a maximum of £550,000
Income multiples: Based on affordability
Arrangement fee: £499
Redemption fee: 3% of the mortgage balance in the first three years
Introducer’s fee: Refer to lender
Tel: 0870 6000 367
Abbey’s three-year stepped fixed rate is pegged at 4.99 per cent in year one, 5.69 per cent in year two and 6.39 per cent in year three.
London & Country technical manager Richard Morea notes that the stepped rates give an average rate of 5.69 per cent. He points out that it is available up to 90 per cent LTV to £550,000 and carries a low fee of £499, which can be added to the loan.
“A stepped product would typically be good for borrowers whose income is limited at outset but have clearly defined increases over the stepped term, such as a trainee solicitor or other such professional, and who can clearly see that their future income will allow them to cover the annual rise in monthly repayments,” he says.
However, on the downside, he says: “With any stepped fixed rate there is a degree of uncertainty, for both applicant and broker, in whether the applicant’s income will actually keep pace with the mortgage cost as the rate increases. Abbey’s offering is no different. “
He reiterates his earlier observation that stepped rates will suit a small group of borrowers whose income is likely to rise at a higher than average rate, but he feels that in this case the opening rate of 4.99 per cent is probably not keen enough to overcome the uncertainty.
Scanning the market for potential competitors, Morea says: “There are currently very few stepped fixed rates on the market, and while this product does compare favourably with it’s peers, the main competition is likely to come from standard three year fixed rates.”
For a straight three-year fixed rate, he suggests the Post Office’s 5.48 per cent deal, which has a cheaper fee at £399 and is available up to 95 per cent with no higher lending charge. “Norwich & Peterborough can also beat the Abbey average with their 5.59 per cent deal, which also has a lower fee at £385. However if the borrower is prepared to opt for a fixed rate over two or five years, then there are lenders who can offer sub 5 per cent deals which may also prove to be attractive,” he says.
Suitability to market: Poor
Competitiveness of rate: Average
Adviser remuneration: Good