Pink Home Loans has introduced the exclusive self-cert discount mortgage, which is aimed at the self-employed.
Funded by The Mortgage Business, the mortgage has a fixed rate of 6.65 per cent until November 30, 2004. Applicants are allowed up to three county court judgements against their name, subject to a total maximum of £1,000, and up to one months arrears. The redemption penalty is four months interest during the fixed rate period, and the mortgage has an arrangement fee of £299.
The maximum amount that can be borrowed is determined by the property value and the employment history of the client. First time buyers are restricted to a maximum loan of £200,000. Applicants who have been trading for at least one year can get mortgages of up to £500,000 and 80 per cent of valuation. Clients who have been trading for at least two years can get mortgages of up to £300,000 and 85 per cent.
However, the Bank of Ireland provides the most competitively priced three-year fixed rate mortgage for the self-cert market. According to Moneyfacts on August 17, 2001, it has a fixed rate of 6.39 per cent until October 1, 2004 but only goes up to a maximum of 75 per cent of valuation. There is a redemption penalty of 5 per cent of the advance during the fixed rate period but no arrangement fee. However there is a higher maximum advance of £500,000 for all borrowers, and no limit for first time buyers.
Comparing the redemption penalties of the two mortgages, according to London & Country Mortgages if the Pink Home Loans mortgage is redeemed in the fixed rate period it will cost £2,400, but the Bank of Ireland mortgage will cost £5,110.
Borrowers who are thinking about moving during the first few years of the mortgage will benefit from the lower redemption penalty on the Pink Home Loans mortgage. Although the Bank of Ireland mortgage has a slightly lower interest rate, it does have a much higher redemption charge.