Mansfield Building Society has undercut the opposition with its five-year discount mortgage.
Mansfield has given the mortgage a discount rate that steps down over the first five years of the loan. For the first year it has a 2.5 per cent discount, for the second year it has a 1.5 per cent discount, for the third year the discount drops to 1 per cent and then for years four and five it goes down to 0.5 per cent. It therefore starts life with an initial rate of 3.99 per cent for loans of up to 75 per cent of the price of the property.
Mansfield offers three months free buildings and contents insurance and no arrangement fee. Mansfield will also refund any basic valuation fees, but only if their valuation experts are used.
If the mortgage is redeemed during the discounted rate period, then borrowers will have to pay a redemption fee of 3 per cent of the advance.
Gloomy predictions of a slowdown in the housing market have so far been firmly squashed by strong sales. According to the Council of Mortgage Lenders the total number of mortgage sales rose from 188,000 in July 2001 to 206,000 in August. Breaking the figures down further, we see that there was also a slight swing towards fixed-rate mortgages, with the proportion of variable and discounted-rate mortgages falling from 66 per cent in July to 61 per cent in August.
One reason for this could be that many borrowers thought interest rates had gone as low as they could in August and wanted to move to a fixed rate as they were afraid of rises in rates. However, following the destruction of the World Trade Centre and the economic turmoil that resulted, the Bank of England cut interest rates again in September.
Taking a look at the competition that this mortgage will face, Moneyfacts says this is the lowest five-year discount rate mortgage on the market on September 20, 2001. Its nearest rival is the five-year discount mortgage from Norwich & Peterborough Building Society. This has a discount of 1.45 per cent in the first five years for loans of up to 90 per cent of valuation. It also has a redemption penalty of three months interest during the discounted period.