Beat The Mortgage Rate Rises
No less than five mortgage lenders have hiked up their rates this week. Find out how to get your hands on the cheapest remaining deals, and follow our three easy steps to beat the rate rises.
Personally, I'm not superstitious. I don't believe in fate, black magic or the Evil Eye. In fact, I would go so far as to say I think such beliefs are a load of old codswallop.
But even I can't deny that the number 13 proved unlucky for mortgage borrowers this week. The rate at which banks lend to each other (known as the LIBOR rate) rose for the 13th successive day on Thursday, pushing up the cost of inter-bank borrowing to the highest rate seen all year.
Banks are now charging each other 6% to borrow funds - and that means the cost of borrowing is about to get a hell of a lot more expensive for you and me.
Before the credit crunch began to bite, LIBOR closely reflected before Bank of England Base Rate (currently 5.25%). But now the gap between these two rates has widened so significantly that lenders are finding tracker mortgages in particular more expensive to fund.
These mortgages track the movements of the Bank of England Base Rate - but the lenders still get to decide how closely the tracker rate is set to follow the Base Rate. And to cover the increased costs they are facing, lenders are hiking up the rates of their trackers.
Nationwide, for example, has just increased its entire two-year tracker mortgage range by 0.57% This means that if you only have a 5% deposit, you will pay a whopping 7.1% with the Nationwide. And its lifetime tracker range rate is up 0.51%.
The bad news is, Nationwide isn't the only lender to put up its tracker rates. Cheltenham & Gloucester has also increased the rates on its tracker range by 0.3% this week, while Chelsea Building Society has similarly hiked up its trackers by 0.35%.
And sadly, it's not just trackers that are going up in price. Nationwide has also increased the rates on its fixed-rate mortgage range by 0.2% and so has Chelsea.
Norwich & Peterborough Building Society and IF.com, a subsidiary of HBOS, have also increased the rates on their mortgages by up to half a percentage point.
But don't despair. There are still some decent trackers and fixed rate deals around. For example, if you have a 10% deposit, the Co-operative Bank is offering an extremely competitive tracker at just 0.09% above Base Rate (so currently 5.34%).
On a £150,000 mortgage, that's £124 a month less than you would pay with the Nationwide. However, bear in mind there is a £999 fee.
Similarly, if you prefer a fixed rate, Principality is offering the market-leading two-year deal at just 4.99%. Again, the fee is £999.
Both of these deals are currently available from The Motley Fool Mortgage Service - but unfortunately, they may not be around for much longer. As my Foolish friend Cliff D'Arcy reported earlier this week in Half Of Home Loans Are History, the number of mortgage deals available has decreased by more than 50% in the last nine months.
There are now just 6,200 deals on offer, compared to the 13,000 that were available before the credit crunch.
Because there are so few competitive deals around at the moment, the market-leaders are typically being swamped with demand.
This means even the lenders which do not rely heavily on the LIBOR rate for funding -- instead using their customers' savings deposits to fund their mortgage lending -- are being forced to put their rates up.
Some, such as Bath Building Society, have even temporarily withdrawn their mortgage ranges altogether, claiming they cannot cope with the volume of customers their deals are attracting.
Don't Hang About
The moral of the story? Don't hang about if you want a new mortgage this month. In fact, don't hang about if you want a new mortgage next month, or even in six months' time. A broker should be able to book you a deal now that will be valid for at least three to six months.
This means if you're due to come to the end of your current deal at any point between today and the end of September 2008, you should be shopping around now.
Of course, you may prefer to wait and see if rates go down, so that you can bag a better deal later on. But the Foolish thing to do would be to pick a deal now, and then opt to add your fee to the mortgage.
That way if rates go down, you shouldn't lose anything by changing your mind, not even the fee. (Don't worry that by opting to add the fee to the mortgage, you'll pay interest on it. To get around this, simply reduce the amount you want to borrow by the cost of the fee and you should be even Stevens.)
Another Foolish tip is to look at whether you can over-pay on your current deal, especially if your current rate is cheaper than the rate on any deal you can remortgage to. By over-paying now at a lower rate of interest, more of your money will go towards reducing your capital debt.
This will also mean that you will have built up more equity in your property, and so will qualify for lower loan-to-value (LTV) deals. As Fool Neil Faulkner explained in Two Ways To Save £2,000 Your Mortgage, this often means you will be eligible for more deals at cheaper prices.
Many deals allow you to over-pay by up to 10% of your outstanding balance without incurring an Early Repayment Charge, but double-check with your lender just in case.
Speed Can Save You Thousands
And finally, bear in mind that in situations like this, fee-free mortgage brokers can be worth their weight in gold* because they can speed up the mortgage application process and ensure you get in there before a deal is withdrawn. This could potentially save you thousands.
Just make sure you opt for one that can compare deals from the whole of the market, rather than being tied to a particular lender.
And until you've secured that market-leading rate, do me a favour: don't walk under any ladders, step on any cracks, open an umbrella indoors, cross the path of any black cats, drop a mirror or spill some salt. In the current economic climate, you need all the luck you can get...
* For the pendants among you: Yes, I was speaking metaphorically. The average broker, weighing 12 stone, would have to save you £1.2m if he was really worth his body weight in gold! A tall order, even for The Motley Fool Mortgage Service!