Credit crunch? What credit crunch? Here are five tempting variable rates and five fabulous fixed rate mortgage deals.
The mortgage market is still struggling from being pulled in all directions, being told to simultaneously lend more to borrowers and lend cautiously and responsibly.
It also continues to facing severe liquidity problems and is being admonished for not passing on rate cuts while trying to attract deposits with paltry savings rates.
It seems that lenders cannot win, but can borrowers? Have the Base Rate cuts plus the pressure on lenders led to cheaper mortgage deals for all?
No is the short answer, and borrowers with a small deposit or remortgagors with little equity are still suffering from a dearth of attractive high loan-to-value (LTV) mortgages. But at least things are getting better, whether you fancy a variable or a fixed rate. We look at the best of both.
Ups and downs
Variable rates are popular with borrowers who have seen mortgage rates fall in response to Base Rate cuts, and want a slice of the ‘cheap deal’ pie. Indeed with the possibility of rates falling further getting into a variable rate now could mean future falls in repayments.
Of course, you should go into such a deal with your eyes open -- if rates were to rise (and nobody can predict what will happen) your pay rate would also increase, and there is no cap as to how high it can go.
But since many term trackers and standard variable rates impose no early repayment charges borrowers are free to move elsewhere if rates do start rising, subject to remortgage costs. Some lenders even waive these with ‘drop-lock’ options, where you can take out a tracker rate and switch to one of your lender’s fixed deals at any time without paying the usual fees and charges. Nationwide and C&G for example both offer drop-lock options on their trackers.
Another plus with variable rates is that they are still currently priced lower than fixed rates and in general come with reasonably low arrangement fees. Standard variable rates that are still available to new borrowers are sometimes fee-free (as the two examples in the Variable Rates table below show) and tracker fees are generally under £1,000.
However Alliance & Leicester this week launched a tracker range which offers a range of price and fee options, allowing you to choose a lower rate and higher fee if that better suits your needs and finances.
For example, at 60% LTV the headline two-year tracker is just 3.29% but it comes with a massive fee of 2% of the loan. Borrowers can choose a smaller (but still large) fee of 1% of the loan and take a slightly higher rate of 3.79%.
Sub-3% from HSBC
Another interesting variable rate development in the last week has been the launch of HSBC’s best buy busting 2.99% two-year discounted variable rate deal. This amazing rate is available up to 60% LTV, and comes with a fee of £999 but, alas, is only available for HSBC Premier customers. And to become one of those you need £50,000 in savings and investments with HSBC or a £250,000 mortgage with the bank and a salary of £75,000. So while the rate is eye-catching it is by no means open to all.
The biggest drawback within the variable rate sector is the fact that trackers are currently only available up to 80% LTV. If you want a variable rate and need to borrow more than that, a standard variable rate (SVR) is your best bet, but you will have to find a lender that is prepared to give new borrowers access to its SVR, as many wont.
Here’s my best of the rest:
Variable Rates
| Lender | Type | Duration | Rate | Fee | Loan to Value (LTV) |
|---|
| HSBC | Tracker | Term | 3.45% | £799 | 60% |
| Alliance & Leicester | Tracker | Two year | 3.29% | 2% | 60% |
| Stafford Railway Building Society | Standard variable rate | Term | 3.99% | Fee-free | 75% |
| First Direct | Tracker | Term | 3.39% | £799 | 80% |
| Britannia Building Society | Standard variable rate | Term | 4.99% | Fee-free | 90% |
Compare other variable rates at Fool.co.uk
Time to fix it?
Despite tracker deals being priced lower than fixed rates for most of 2008, and still now, fixes have come down in price following the last four Base Rate cuts. Lenders have responded to falling swap rates (which reflect the cost of their fixed rate money) with two-year swaps now below 2.5%. But fixes are still only really attractive at the lowest loan-to-value tiers. For those borrowing at 90% LTV fixed rates of over 5.5% look expensive compared to a Base Rate of 1.5% (and five-year swaps at 3.15%).
New launches this week come from Alliance & Leicester, with a wide range of fixes including two, three and five year deals at, 60%, 75% and 85%.
Plus within these bandings there are different fee options. For example within the two-year fixed rates up to 75% you can choose from a rate of 4.69% which is fee-free, or a tiny rate of 3.69% with an enormous 2% fee.
While some may balk at the idea of such high fees, it does offer options. A&L for example has four different fee bandings on its five-year fixed rates -- £599, £999, 1% and 2%. This may be confusing to some but in my view it is good to have lots of choice.
However the lender doesn’t make it into my favourites of the current fixed rates on offer, based on a range of LTV levels, durations and fees.
Fixed rates
| Lender | Duration | Rate | Fee | Loan to Value (LTV) |
|---|
| Royal Bank of Scotland | Two years | 3.99% | £799 | 60% |
| NatWest | Two years | 4.14% | £999 | 75% |
| The Post Office | Five years | 4.74% | £599 | 75% |
| Yorkshire Bank | Two years | 5.99% | £599 | 90% |
| Britannia Building Society | Five years | 5.69% | £549 | 90% |
Compare other fixed rates at Fool.co.uk
Here's hoping you find the perfect deal for your needs - before it disappears!