Staffordshire Building Society is stepping out with the introduction of the two-year step discount mortgage.
With a discount of 3 per cent in the first year and 2 per cent in the second year for loans of up to 90 per cent of valuation, this gives it a payable rate of 3.74 per cent in the first year. There is also a cashback available, up to one per cent of the advance.
Basic valuation fees are free if Staffordshire's valuers are used. There is a redemption penalty of 5 per cent of the advance for the first three years, 4 per cent in year four and 3 per cent in year five.
Borrowers staying with the Staffordshire for five years or more will get a 0.4 per cent loyalty bonus. This will take the form of a discount on the then standard variable rate.
According to Moneyfacts the most competitive two-year stepped rate discount mortgage is from Northern Rock. This has a 3.5 per cent discount in the first year and a 2.5 per cent discount in the second year, for loans of up to 95 per cent of valuation, giving it a payable rate of 3.49 per cent in year one. It also comes with free accident, sickness and unemployment cover for the first six months. The redemption penalty is 3 per cent in the first year, 6 per cent in the second year, 4 per cent in the third year, 3 per cent in the fourth year, 2 per cent in the fifth year and 1 per cent in the sixth year.
Despite the longer redemption period, the Northern Rock mortgage has a slightly more competitive redemption penalty than the Staffordshire product. However, the increase of penalty in the second year is steep and rather unusual. Most similar mortgages with extended redemption penalties have a year by year reduction in the redemption penalty.