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Charcol bases loan on US rates for sterling payment

Charcol is launching a new version of its Federal Reserve mortgage, which is based on US interest rates but without the currency risk as all payments are in sterling.

The product, underwritten by Leeds & Holbeck Building Society, starts with a fixed rate of 2.99 per cent until January 2003.

For the following five years, the mortgage tracks the three-month dollar Libor plus 1.2 per cent. Three-month dollar Libor is currently 1.9 per cent, which would give a rate of 3.1 per cent. The tracker rate is reset every three months.

The product comes with a free valuation and flexible features allowing penalty-free repayments of 10 per cent a year. Any overpayments can be used to allow payment holidays of up to six months a year.

Maximum loan to value is 90 per cent. Early redemption charges are 5 per cent, dropping to 3 per cent up to 2008. There is an arrangement fee of £395.

Senior technical manager Ray Boulger says: “The key to evaluating this mortgage is to consider what the average differential is likely to be between short-term US and UK interest rates over the five years of the deal.

“The cheapest normal UK tracker mortgage for five years is at bank base plus 0.7 per cent, giving a current pay rate of 4.7 per cent. This product is 1.6 per cent lower. This gives a much cheaper rate than most US mortgage borrowers pay.”

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