Capped term: Until March 31, 2009
Capped rate: 5.25%
Tracker term: Life of loan
Tracker rate: 0.49% above Bank of England base rate until March 31, 2009, 0.69% above Bank of England base rate for life of loan
Payable rate: 4.99%
Minimum loan: 1,500
Maximum loan: Up to 95%% of valuation subject to a maximum of 250,000, up to 90% of valuation subject to a maximum of 400,000, up to 80% of valuation subject to a maximum of 750,000, up to 75% of valuation subject to a maximum of 1m
Income multiples: Main income up to 19,999 up to 3.6 times principal income plus second, main income 20,000-34,999 up to four times principal income plus second, main income 35,000 and above up to 4.3 times principal income plus second
Conditions: Free remortgage transfer service, one free mortgage valuation up to 650, 200 contribution towards remortgage legal fees if clients own solicitors are used. For joint applications, the income multiple is applied to the total income, but the income of the higher earner determines which multiple applies
Flexible features: Overpayments, payment holidays up to three months a year, interest calculated daily
Arrangement fee: 350 plus booking fee 199
Redemption fee: None
Introducers fee: Subject to negotiation
Tel: 02476 839230
Coventry Building Societys latest capped rate mortgage is capped at 5.25 per cent until March 31, 2006. However, as it tracks at 0.49 per cent above the Bank of England base rate, the current payable rate is 4.99 per cent.
Looking at the ways in which this product is good for IFAs and their clients Cotton says: This deal is capped at 5.25 per cent for three years with a tracker rate of 0.49 per cent above base rate and an arrangement fee of 549. It offers good incentives for remortgagors in the shape of a free valuation and free legal work.
Cotton also feels this deal also offers a decent amount of flexibility with no early redemption charges and the facility to make overpayments.
However, looking at the negative aspects of the mortgage Cotton says: The main downside with this deal is that the best-of-both-worlds scenario it offers comes at quite a price. This is the case with most capped rates at the moment, not just this one.
Cotton also complains that the current payable rate of 4.99 per cent is considerably higher than most three-year variable rates. He also says the cap of 5.25 per cent is around 1 per cent higher than the best three-year fixes.
Therefore, borrowers who are happy to choose between a fixed and variable rate, rather than opt for the middle ground are likely to get better value over the next three years, says Cotton.
Scanning the market for loans which will provide the main competition Cotton says: As far as direct competition from other capped rates, there are not an awful lot of them around. The best rate over three years is from Leeds, which is capped at 4.75 per cent, although it doesnt have the flexibility that the Coventry deal does. Skipton has a three-year deal capped at 4.99 per cent.
He adds that if borrowers are looking for flexibility with a secure rate, then Northern Rock has a three-year fix at 4.79 per cent. The strongest competition is likely to come from standard fixed and variable deals, he says.
Summing up Cotton says: While the concept of capped rates is a good one, the market for them is very small certainly compared to the vast range of fixed and variable rates available. This means that there is significantly less competition in terms of the rates that lenders are offering.
Suitability to market: Average
Competitiveness of mortgage rate: Average
Adviser remuneration: Average