Type: Fixed-rate followed by tracker mortgage
Fixed term: One year
Fixed rate: 5.29%
Tracker term: Life of loan
Tracker rate: 0.65% above the Bank of England base rate
Minimum loan: £150,000
Maximum loan: Up to 90% of valuation subject to a maximum of £500,000, up to 85% of valuation subject to a maximum of £1m, up to 80% of valuation subject to a maximum of £2m
Income multiples: Based on affordability
Conditions: Capital repayments of up to 10% a year allowed without penalty subject to a £10,000 maximum, free valuation, free legal fees or £200 cashback
Flexible features: Overpayments, underpayments, payment holidays, lump sum withdrawals, interest calculated daily
Arrangement fee: None
Redemption fee: 5% of the mortgage balance in the first three years
Introducer’s fee: 0.25% of the original loan
Tel: 0845 300 3444
This deal comprises a one-year tracker at 5.29 per cent, followed by a lifetime tracker at 0.65 per cent above the Bank of England base rate.
In John Charcol product specialist Katie Tucker’s view, a short-term fix with a tracker is a good idea for borrowers who think that another rate rise or two is on the cards and that rates will start to come down again next year.
“The headline rate is very good at 5.29 per cent, as is nil arrangement fee. However the 0.65 per cent margin on the tracker for years two and three is relatively high. Arguably, the high margin is a reasonable trade off to avoid the arrangement fees in excess of £1,000 that some lenders are using to subsidise such a headline rate,” she says.
Tucker believes free valuation and legal fees are a great feature in the current market because there will be a lot of remortgages in the autumn as several hundred thousand borrowers come off their low fixed rates and hunt for an affordable replacement. “The product also allows overpayments, an important feature in the current climate of high interest-only take up,” she says.
Turning to the negative features of the deal Tucker says: “The 5 per cent early redemption charge is extremely high, especially when compared to the 1 per cent levied by the directly comparable product from the Woolwich.” She adds that the introducer’s fee is relatively low at 0.25 per cent.
Scanning the market for possible competitors Tucker says: “Woolwich will provide direct competition for this product. Its headline rate is slightly higher at 5.39 per cent until September 30, 2008 but the margin over base for the ensuing years is far lower at 0.39 per cent over the base rate for term. It is only available to 80 per cent of valuation but should still capture most of the remortgage market.”
Tucker says the advantages of the Woolwich deal are the 1 per cent early redemption charge for those who do need to get out of it in years two and three, and the droplock. “Woolwich’s droplock facility is a great fall-back plan as it means that once you have reverted to the tracker in year two, you can pay the relevant arrangement fee to drop out and lock into whatever fixed rate they have available at the time, should interest rates start to creep up again.” says Tucker.
Summing up Tucker says: “While Norwich and Peterborough’s fix and track mortgage beats Woolwich’s by being available to £2m where Woolwich’s is only available to £1m, loans of that size would be better off paying a large flat fee for a two year fix or a generous discount. Had this product come with a droplock or a very low early redemption charge to balance the risk of such a high margin in years two and three, it would have been better.”
Suitability to market: Average
Competitiveness of rate: Average
Adviser remuneration: Poor