Newcastle Building Society has introduced a three year fixed rate mortgage that is available for loans of up to 90 per cent of valuation.
The mortgage is fixed at 5.55 per cent until August 30, 2004 and is available to all borrowers up to a maximum loan of £250,000.
Borrowers who redeem during the fixed rate period must pay an early redemption penalty that reduces each year. In year one, the penalty is 5 per cent of the loan, which is reduced to 4 per cent in year two and 3 per cent in year three. There is also an arrangement fee of £350.
Figures from the Council of Mortgage Lenders show that fixed rate mortgages accounted for 29 per cent of the mortgage market in June 2001 compared to 35 per cent in June 2000. The series of cuts in the Bank of England base rate during this period may have encouraged some borrowers not to lock into fixed rates . However, some lenders are increasing their fixed rates again and this may be a signal to some borrowers that rates have peaked and they should move back into fixed rate schemes.
According to Moneyfacts on July 24, 2001, Darlington Building Society has a three year fixed rate mortgage that is more competitive than the Newcastle mortgage. It is fixed at 5.19 per cent until August 30, 2001 and is also available for loans of up to 90 per cent of valuation with a maximum loan of £250,000.
Borrowers who redeem in the first three years must pay six months' interest as a penalty and there is an arrangement fee of £199, which is lower than the Newcastle mortgage. But the redemption penalty of the Newcastle mortgage is higher for borrowers who redeem in years one and two, but not in year three.
A £100,000 repayment mortgage that is redeemed within the first three years will incur a penalty of £3,420 with the Darlington and £5,000 with the Newcastle in year one, £4,000 in year two and £3,000 in year three.