Avoid these rubbish mortgage deals
These mortgage features have been designed to attract new borrowers. But they are a waste of time.
The mortgage market can seem quite a crowded place, despite the issues of the last few years. There are plenty of lenders to choose from. Some you’ll have heard of, but some names will be completely foreign to you - you won’t find them on the high street.
As a result, there can be a lot of competition for borrowers. To set themselves apart from the rest, some lenders turn towards little gimmicks or product tweaks to try to entice you in. However, the three that I’m going to look at below, in my view, are a complete waste of time.
The first-time buyer savings account
With first-time buyers increasingly finding it difficult to access the property market, a succession of banks and building societies have launched savings accounts targeted at such buyers in order to help them build up more significant deposits. That way they’ll have a better choice of mortgages.
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Last month, Clydesdale and Yorkshire Banks unveiled their Regular Home Saver, an account requiring a minimum of £200 to be paid in each month. However, given the rate of interest is just 0.5%, the account is quite honestly a waste of time.
The whole point of regular savers is that because they are just a starter for getting you into the savings habit, the rates on offer are far better. For example, with HSBC, so long as you have a certain type of current account with the bank, its regular saver will pay you 8% in interest.
Now Nationwide has launched its own version, paying 2.5% and requiring a minimum of £50 to be paid in each month. As with the Clydesdale account, should the borrower then go for a 95% mortgage from that lender, they will then qualify for cashback of up to £1,000. And while the Nationwide account is an improvement on the Clydesdale effort, I’m still not a fan.
When you consider that you can open an easy access account paying 3.05% from Nationwide (the Nationwide MySave Online Plus Account), I don’t really see the point with these regular savers. Besides, buying with a 5% deposit is hardly a great idea at the moment.
There are plenty of savings accounts that will help you build up a healthy deposit to help you buy a home. Sadly, the ones that explicitly target those saving for a deposit tend to be the ropiest of all.
Cashback on your mortgage
I love cashback. In many ways my shopping habits have changed since I discovered the concept. When it comes to buying presents for my loved ones, I tend to base the present decision on whether I can get some money back for my purchase.
Hell, on Valentine’s Day when I sent my wife some flowers, I picked the florist by going through the various florists on Quidco. Very romantic, I know.
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However, when it comes to picking a mortgage, they strike me as a complete waste of time.
You can get a two-year fixed rate from The Mortgage Works offering £500 cashback, which no doubt may come in useful, but to get the mortgage you have to shell out on a fee of a whopping 1.5% of the advance. On a £150,000 mortgage, that’s a fee of £2,250! Why not just charge a smaller fee?
It’s one thing to offer cashback if it’s going to be a decent amount of money, cash that can help with decorating or moving costs. But if you go for an offset mortgage from Market Harborough Building Society you’ll get a measly £10 in cashback. Yes, £10. Seriously, what’s the point?
There are all sorts of different factors to consider when applying for a mortgage. Whether you get cashback or not should be pretty much at the bottom of the list.
Get a discount on your mortgage rate!
Variable mortgages have proven very popular with borrowers in recent years, and it’s not hard to see why. The interest rates are so incredibly low, and offer borrowers a real boost in their pocket.
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However, variable mortgages come in different forms, and one – the discount mortgage – is, in my view, a dangerous beast. That’s because unlike traditional tracker mortgages, the rate you pay is not linked to the Bank Base Rate. Instead, it’s a discount from the lender’s Standard Variable Rate.
That’s an important distinction as it allows the lender to increase its Standard Variable Rate – and therefore the rate you’re paying on your mortgage – at any time, irrespective of whether Bank Base Rate has changed. That’s a huge added uncertainty that I could do without when signing up to such a long-term commitment as a mortgage.
At least if your rate is linked to Base Rate you will have an idea of when it is likely to rise, due to the changing state of the nation’s economy. There may be no such warning if you’ve saddled yourself with a discounted rate. If you’re going to go with a variable mortgage, at least go for one where you can understand when and why your rate may increase.
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