Halifax's new FTB 5 year fix is a dog
Posted on 28 April 2009 by
I am not impressed with Halifax’s new 90% maximum LTV First Time Buyer (FTB) mortgage available from tomorrow, although it is an improvement on their current offering, which is 7.49% fixed to 31/7/14 with a £999 fee and no freebies. The new deal pays the 1% stamp duty land tax on properties being bought at any price over the current £175,000 starting threshold for the tax up to £250,000 but is otherwise the same. It thus has a maximum loan size of £225,000 (90% of £250,000).
Assuming a mortgage at the maximum 90% LTV, the benefit of Halifax paying the 1% tax equates to a 1.11% cashback on the mortgage amount, which is equivalent to approximately 0.22% per year, making the effective rate 7.27%, but with the benefit of a cashback, which could be important to anyone struggling to save a big enough deposit.
However, despite Halifax now paying the stamp duty land tax this deal is the second most expensive 90% LTV fixed rate mortgage on the market. The most expensive is Halifax’s similar product for non FTBs, without the cashback!
Only 4 lender groups are currently offering 90% LTV mortgages to new customers, Lloyds banking Group, RBS Group, Abbey and National Australia Bank Group. (Nationwide will go beyond 90% for existing customers moving home.) The cheapest 5 year fix is 5.99% with no arrangement fee from NatWest and Halifax’s sister company, Cheltenham & Gloucester, offers a much cheaper 5 year fixed rate than this new Halifax deal.
There is a tiny loophole in the new Halifax fixed rate which would make this deal excellent value for a very tiny number of people. The mortgage is available for any LTV up to 90%. Thus because the cashback is based on the purchase price, not the mortgage amount, for the very rare FTB who has a massive deposit this deal would be transformed from being a dog to being stupendous value.
For example if someone only wanted to borrow £12,500 to buy a £250,000 property, i.e. a 5% LTV mortgage, the cashback of £2,500 would be 20% of the mortgage amount, equivalent to 4% p.a., thus bringing the effective rate down to a market leading 3.49%. Unfortunately this loophole is more theoretical than real. Any FTB who can find a 95% deposit could probably find 100% and pay for the property in cash!
Halifax has the right idea with this mortgage because finding the stamp duty land tax can be a stretch to far for some FTBs. Pity about the interest rate!
Categories: Property market, Mortgages, Interest rates
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