Looking to fix? Why mortgage rates aren't the only factor you need to consider...
Posted on 21 July 2016 by
Yorkshire Building Society has today launched a 10 year fixed rate at 2.89% for loan to values (LTV) up to 75%, which is the lowest 10 year fix available at 75% LTV.
In its press release it states the following:
“We’re proud to launch the lowest ten-year fixed rate at 75% LTV available on the market and as it features a porting facility, borrowers have the reassurance that they may be able to transfer their mortgage should they want to move house during the fixed rate period.”
Portability is an important feature of any mortgage with early repayment charges (ERC), especially those with high ERCs for as long as 10 years. Reading between the lines, many people would be wary over the statement that borrowers “have the reassurance that they may be able to transfer their mortgage should they want to move house during the fixed rate period”. “May be able to transfer” is a little bit non-committal, as borrowers 'may' be able to do all sorts of things; true reassurance is only provided if it is guaranteed.
Portability has become much more of an issue since 2008, and more so since the introduction of the Mortgage Market Review in 2014. With criteria and affordability playing a much greater part now, many borrowers have made the mistaken assumption that they would be guaranteed to be able to transfer their mortgage when moving home. Only after submitting their porting application did they discover they didn’t meet their lender's current criteria, resulting in significant ERCs having to be paid to allow the house move to go ahead with a mortgage from a different lender.
So, with that in mind it's worth noting that the ERCs for Yorkshire Building Society’s new 10 year fix are as high as 7% in the first 3 years, similar to 7% in the first 4 years on Nationwide's range of 10 year fixes. 7% is the highest initial ERC on any currently available 10 year fixed rate mortgage.
Thus some mortgages designed for borrowers who want the peace of mind provided by long term payment security give those borrowers the alternative worry of the possibility of a large bill to redeem the mortgage, should they need to move home within 10 years and their lender declines an application to port.
As a comparison, in its range of 10 year fixed rate mortgages, although having a lower maximum LTV of 65%, Coventry Building Society manages to combine market leading interest rates - 2.49% for its standard 65% LTV product and 2.75% for the offset option - with ERCs which are far less onerous, 5% for the first 2 years, 3% for the next 3 and then just 1% in the last 5 years.
Yorkshire Building Society adds that “We have launched this new ten-year fixed rate mortgage in response to strong customer demand for a longer-term fix.” We too have seen increased interest in longer term payment security, especially as the rates available are now well below 3% and the differential with 5 year fixed rates has narrowed. However, as with most things, the devil is in the detail and so do check those ERCs.
So what's the moral? It's important to understand that a rate is just one aspect of a mortgage and it’s easy to get blinded by it. However, a good independent mortgage broker will explain both the pros and cons of a product and only recommend it if it suits your needs.
Interested in long term fixes? Speak with a member of the John Charcol team now, call us on 0344 346 3672 or request a call back here.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and neither Charcol Limited nor Ray Boulger will accept liability for them.