Lambeth Building Society is going for the discount market with the introduction of the three-year discount mortgage.
The mortgage has a two per cent discount for the first three years of the loan, giving it a payable rate of 4.99 per cent for loans of up to 95 per cent of valuation.
The mortgage also has a redemption penalty of six per cent of the advance for the first five years of the loan. Up to 10 per cent of the original amount borrowed can be repaid every year without incurring any redemption penalties.
Falling interest rates in the UK over the past six months have encouraged many people to switch to discounted rate mortgages. Figures supplied by the Council of Mortgage Lenders show that in the first quarter of 2001 an estimated 68 per cent of all new mortgages were either discounted or based on a standard variable rate, with just 32 per cent being fixed rate.
According to Moneyfacts on June 25, 2001 the most competitive three-year discount mortgage is from Norwich & Peterborough. This has a discount of 2.25 per cent for the first three years of the loan, making a payable rate of 4.49 per cent for loans of up to 90 per cent of valuation. The mortgage is not available for any loans of under 90 per cent of valuation. The mortgage also has a redemption penalty of three months interest in the first five years of the loan. Borrowers can repay up to 10 per cent of the original amount every year without incurring a penalty.
Based on a £100,000 mortgage, London & Country Mortgages estimates that monthly payments for the Lambeth Building Society would be £590.68. Payments for the Norwich & Peterborough mortgage would be £561.41 a month.