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Right time for Skipton cap?

Skipton Building Society

Base Rate Tracker Capped 5.99%

Type: Capped-rate tracker mortgage

Tracker term: Until April 30, 2011

Tracker rate: 0.59% above the Bank of England base rate

Payable rate: 5.99%

Capped term: Until April 30, 2011

Capped rate: 5.99%

Minimum loan: £5,000

Maximum loan: Up to 75% of valuation subject to a maximum of £1m

Income multiples: Based on affordability

Conditions: Capital repayments of up to 10% a year allowed without penalty, free legal fees and free valuation for remortgages

Arrangement fee: £749

Redemption fee: 2% of the amount repaid in year one, 1% in years two and three

Introducer’s fee: Subject to negotiation

Tel: 0800 876 6010

This mortgage from Skipton tracks at 0.59 per cent above the Bank of England base rate and is capped at the current pay rate of 5.99 per cent.

Putting this deal in its market context, Belgravia Insurance Consultants consultant Paul White says: “Lenders always seem to offer protection against scenarios which are unlikely to happen, at least in the short-term. The next anticipated bank rate move is down, from which Skipton’s borrowers on this product should benefit.

“However, it remains to be seen whether this cap will actually ever kick in. Fixes are set at a cheaper rate than this one, where the repayments would be lower from day one. Capped rates generally attract most business at the peak of an interest cycle, when fixes are dear. We are not at that point,” he says.

Looking at how this deal will be useful to IFAs and their clients, White says: “CCJs and defaults are considered, there a maximum term of 40 years and clients need only their last month’s bank statement.”

He also points out there is no need for clients to worry about higher lending charges because the maximum LTV is restricted to 75 per cent of valuation.
Other features that White likes are this deal’s portability, free legal fees and free valuation for remortgages and higher income multiples of four times a single salary.

“The flat product fee of £749 can be added and annual overpayments of up to 10 per cent a year are allowed, free from the early redemption charge. As the cap is set at the current pay rate, the mortgage payments can only go down,” says White.

Considering the disadvantages of this deal, White feels that the maximum LTV of 75 per cent could be a little higher at 85 per cent. “If the mortgage rates rise, particularly towards the end of the three years, then there would be a rate shock upon coming out of this deal. However, Skipton’s reversionary rate is lower than the market average, so it would probably keep the business,” he says.

Scanning the market for similar deals that could compete with Skipton’s offering, White mentions Darlington’s three- year discount with a current pay rate of 5.49 per cent. “ This would be cheaper than the Skipton’s product. Its borrowing cap is lower at £300,000, but up to 80 per cent LTV is permitted. However, there is a valuation cost and its flat redemption fee of 3 per cent is not tapered like Skipton’s,” he says.

Vernon’s 2 per cent discount for three years, with a pay rate of 5.55 per cent is White’s other suggestion, “Borrowing is restricted to 80 per cent of valuation to £250,000. Again, there is a flat 3 per cent redemption fee and it offers free legal fees and valuation Its £395 fee can be added to the loan and the maximum age is 70,” he says.

BROKER RATINGS

Suitability to market: Poor
Competitiveness of rate: Poor
Flexibility: Good
Adviser remuneration: Average

Overall 3/10

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