Type: Tracker mortgage for first time buyers
Tracker term: Two years
Tracker rate: 0.15% above the Bank of England base rate
Payable rate: 4.9%
Minimum loan: £25,000
Maximum loan: Up to 95% of valuations subject to a maximum of £500,000
Income multiples: Based on affordability and amount borrowed, with up to three incomes considered
Arrangement fee: £595
Redemption fee: 3% of the amount repaid in the first two years
Introducer’s fee: Subject to negotiation
Tel: 08456 070708
This deal from Chelsea Building Society is a tracker mortgage aimed at first-time buyers who need financial help from a parent or other relative to get onto the property ladder.
London & Country mortgage specialist James Cotton points out that this product is pegged at 0.15 per cent above the Bank of England base rate for two years, with a £595 fee. “The deal is available up to 95 per cent of valuation and carries early repayment charges for the first two years,” he says.
According to Cotton, the helping hand scheme is a tweak on the guarantor facility. “ In this situation, a maximum of three incomes can be taken into account which can include parents or another close relative such as a sibling.
Chelsea’s standard income multiples are used (plus the third income) and the mortgage term is based on the borrower’s age rather than the relative’s
Looking at the potential drawbacks of this deal Cotton says: “Guarantor deals have been proving popular recently, but Chelsea’s contribution to this market falls down in a few key areas and is not as innovative as others. At best, it could double the borrowing power of the applicant.
“The main downside, compared to, say, Bank of Ireland/Bristol & West’s First Start scheme, is that the guarantor has to go joint on the mortgage and the property. This could have CGT implications for the relative.”
He highlights the fact that although three incomes can be taken into account, the combined borrowing capacity must cover not only the new loan, but also any existing debt such as the relative’s own mortgage.
“Other schemes can treat the relative’s mortgage debt as a monthly commitment, which can improve the amount that can be borrowed considerably,” says Cotton.
Cotton adds that for a deal that is primarily aimed at first time buyers, it is a shame to see a higher lending charge for loans above 90 per cent of valuation. “For someone buying a £150,000 property at 95 per cent of valuation, the HLC would be a hefty £2,475.,” he says.
Scanning the mortgage market for potential competitors Cotton says: “Bank of Ireland and Bristol & West’s first start schemes are obvious competitors. Norwich & Peterborough has its lend-a hand scheme and Coventry Building Society has its step-up facility. In addition, lots of lenders will accept guarantors as standard and many will also take more than two incomes into account.”
Suitability to market: Average
Competitiveness of rate: Average
Adviser remuneration: Good