Type: Fixed-rate mortgage
Fixed term: Until December 31, 2013
Fixed rate: 1.99%
Minimum loan: £5,000 for purchase, £25,000 for remortgage
Maximum loan: Up to 70% of valuation subject to a maximum of £750,000
Income multiples: Based on affordability
Conditions: Capital repayments of up to 10% a year allowed without penalty in the fixed-rate period
Arrangement fee: £1,800 completion fee for loans up to £500,000, 1% of the original loan for loans above £500,000
Redemption fee: 3% of the amount repaid in year one, 2% in year two, £199 admin fee
Introducer’s fee: refer to lender
Leeds Building Society has introduced a two-year fixed rate deal with a market-leading rate of 1.99 per cent for loans up to 70 per cent of valuation.
Looking at where this product is pitched in the market, Financial Services partner Alan Lakey says: “League tables offer an easy, if often lazy, method of product selection and Leeds has opted to head the two-year fixed table with this, the lowest fixed rate available.
“It will jump out to potential borrowers scrutinising tables in papers and websites and will appeal to those purely focused on the rate and the repayment figures. Of course, other factors must be assessed such as the application fee, which is either a fixed £1,999 for loans up to £500,000 or £199 plus 1 per cent of the loan amount if above £500,000.”
Lakey believes a two-year fix may not be the best choice given the likely rate rise in a year or so. “But if a two-year fix is deemed the most appropriate route then this offer will be attractive,” he says
Discussing the potential drawbacks, Lakey says: “Leeds is perpetuating the divisive dual product trend by enabling direct applicants to borrow up to 75 per cent as opposed to the introduced limit of 70 per cent. Like all such artificial distinctions, this is unwelcome and fails to foster any goodwill.
“Also, Leeds continues to use an annual interest calculation basis which is consumer-unfriendly and has been abolished by the majority of lenders. This offers only a small difference over 25 years but on a 10-year repayment basis it adds the equivalent of 0.2 per cent to the rate compared with a daily interest calculation.”
Lakey adds that the fixed rate reverts to Leeds base rate which, at 5.69 per cent, is some way above the industry average.
Considering which products are likely to compete with the Leeds deal, Lakey says: “Skipton has a 2.48 per cent fixed rate with a £995 application fee, an offer that also encompasses a free valuation and legal fees for remortgages, something Leeds is not offering. The Mortgage Works’ three-year fix at 2.59 per cent comes with a potentially heft 1.5 per cent application fee but nonetheless will appeal to many borrowers.”
Summing up, Lakey says: “This is good for being a market leader but is not likely to appeal to borrowers who have thought through the potential downsides.”
Suitability to market: Good
Competitiveness of rate: Good
Adviser remuneration: Good