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Product Matters

Barely a week passes without a call for action by Chancellor Gordon Brown to change the way in which stamp duty is charged and rightly so. The banding system and, more importantly, the lack of amendment to these bandings over the years means that stamp duty has become a bigger burden for more borrowers.

Hopefully, we will see some changes but in the meantime, Alliance & Leicester has decided to help with its new first step mortgage. Basically, the deal offers a three-year fixed rate at 5.99 per cent for up to 95 per cent LTV, with no arrangement fee.

The link to stamp duty comes with the addition of a cashback which varies depending upon the loan size – £1500 for loans up to £100,000 and then £2,500 up to £250,000. This is clearly aimed at covering most, if not all, the borrower’s stamp duty bill.

As the cashback depends on the loan size rather than being calculated as a straight percentage of the loan, the value of the cashback varies so on a loan of just over £100,000, it equates to almost 2.5 per cent of the loan but drops to 1 per cent at the maximum of £250,000. With three-year fixed rates currently available at 1 per cent or more below the pay rate of this deal, better overall value could be had by going for a lower rate.

Another downside to the product is that although clearly targeted at first-time buyers, a higher lending charge still applies above 90 per cent LTV, a crippling fee in its own right.

This is a nice idea but I am not sure that the product delivers the best value in the majority of cases.

David Hollingworth is mortgage specialist at London & Country

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