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Leeds offers curious combination

LEEDS & HOLBECK

COMBINATION MORTGAGE

Type:
Discounted rate mortgage followed by capped rate

Discounted term:
Until November 1, 2006

Discount:
1.75%

Payable rate:
4.99%

Capped term:
Until November 1, 2009

Capped rate:
5.75%

Minimum loan:
£25,000

Maximum loan:
Up to 95% of valuation subject to a maximum of £200,000,
up to 90% of valuation subject to a maximum of £300,000,
up to 85% of valuation subject to a maximum of £400,000,
up to 80% of valuation subject to a maximum of £500,000

Income multiples:
Up to 95% of valuation &#45 up to 3.5 times principal income plus second or 2.75 times joint,
up to 90% of valuation &#45 up to 3.75 times principal income plus second or three times joint,
up to 80% of valuation &#45 up to four times principal income plus second or 3.25 times joint,
up to 75% of valuation &#45 up to 4.25 times principal income plus second or 3.5 times joint

Conditions:
Capital repayments of up to 10% a year allowed without penalty, six months&#39 free mortgage payment protection insurance

Arrangement fee:
Loans up to £200,000 &#45 £299, loans up to £300,000 &#45 £499, loans up to £500,000 &#45 £599

Redemption fee:
5% of amount repaid in years one and two, 4% in year three, 3% in year four, 2% in year five

Introducer&#39s fee:
Loans of up to £50,000 &#45 £125,
loans above £50,000 &#45 0.25% of original loan

Tel: 01543 418104

Leeds & Holbeck&#39s combination mortgage consists of a two-year discounted rate with a three-year capped rate.

London and Country mortgage specialist James Cotton thinks it good to see product innovation, but feels a five-year cap would make this product more attractive. He says: “The discount does not compete with the better standard two-year discounts and trackers. However, after two years, the discount finishes and is replaced by a capped rate for a further three years and there are no penalties once the five years are up. The arrangement fee is not paid until completion and the deal offers a decent level of flexibility with a 10 per cent overpayment allowance each year without penalty.”

Looking at the drawbacks of the deal Cotton points out that it is difficult to compare hybrid products such as this with standard deals. He adds: “Although the deal may not have an upfront fee, the arrangement fee, payable on completion, ranges from a reasonable £299 up to more than £599 depending on the mortgage amount and borrowers should be aware of this.”

Cotton feels this product would suit someone who feels interest rates will fall or remain stable over the next two years and then start to rise. He says: “But of course many believe that the reverse is more likely, with further rate rises likely in the short term before peaking. If a borrower is after the security of a fixed or capped rate, they may prefer to have that security now, rather than defer it for a couple of years.”

Considering potential competitors Cotton believes there will be no direct competition because of the mortgage&#39s hybrid nature. He points out that GMAC&#39s rate control combines a fixed rate with a discount, so that it works in the opposite way to the Leeds & Holbeck deal.

Cotton concludes: “People simply looking for a low initial rate may prefer a two-year discount or tracker rate and review the market again once it finishes, whereas those looking instead for peace of mind for the full five years could consider a fixed rate.”

BROKER REVIEWS

Suitability to market: Average
Competitiveness of mortgage rate: Average
Flexibility: Average
Adviser remuneration: Good

Overall 6/10

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