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Product Matters

It is refreshing to be able to write about a Northern Rock two-year fixed rate as over the past month or so it has had a good few.

It started with an extremely competitive rate and then for three consecutive weeks it repriced upwards each week by 10 basis points, resulting in huge volumes of applications. We have now had the same rate for almost three weeks(but currently under funds&#39 warning), and Northern Rock should be back to its usual efficient service.

The rate is not market-leading at 4.99 per cent but there are very few two-year fixed rates less than 5 per cent at the moment. Its main downside is the arrangement fee, which, at £595, is at the top end of the fees charged. For small mortgages, this may make it uneconomical. For bigger mortgages or for clients who have complicated finances,it is a great rate.

Its principal advantage is that it is flexible, so clients can make unlimited partial reductions (as long as it is all not paid off) without penalty. Northern Rock works on daily interest, so these reductions will reduce the client&#39s interest payments as soon as they clear.

The client can then take a payment holiday. What really makes this rate stand out from the crowd is that clients can then redraw these funds. This makes it great value for people who have funds which they can use to pay off their mortgage.

If they need this money back, they can call Northern Rock which will transfer the money back. It is available up to 85 per cent and, if completely repaid, would incur a 2 per cent redemption penalty within the two years.

Jonathan Cornell is technical director at Hamptons International Mortgages

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