Some experts believe many buyers are now struggling to make sense of the flood of new mortgage offers being thrown their way
WREXHAM EVENING LEADER - 17TH DECEMBER 2003
Stuart Glendenning, director of mortgages at moneysupermarket.com, agrees: “The past few years have seen declining interest rates. Borrowers with long-term fixes would not have benefited and would have had to remortgage which usually bears a cost.
“Even when rates are rising and the ‘insurance’ of a long-term fix is valuable, in most cases, the interest rate cycle is such that shorter-term fixes offer similar protection.”
There is the added consideration that first-time buyers rarely stay put for long so the cheapness of a loan is more important to them – particularly in a rising market – than long-term cost.
Perhaps a 25-year fix is only sensible when their likely long-term earning level is established.
It could be risky, at this stage in the cycle, to take any official action that drives the cheapest loans from the market. Buyers who stretched the income multiple dangerously in recent years to board the housing band-wagon, particularly in London and other hotspots, could hit difficulties if rules changed significantly.
According to Ed Stansfield, an economist at the consultancy Capital Economics, the number of mortgages in arrears could rise to 199,000 if base rates hit 4.25 per cent, against the present 3.75 per cent.
At Ilford, Essex-based financial advisors Baronworth, Colin Jackson believes buyers are confused by the flood of mortgage offers. His company provides an annual mortgage review and of life policy premiums linked to home loans.
He says: “In fewer than 50 per cent of cases does it make much sense to switch lenders. Borrowers may be locked in by redemption penalties, or their income may have fallen since they fixed the loan. Self-certification mortgages, when a borrower states their own income, may not help because rates tend to be higher.”
However, Baronworth’s checks invariably find scope for cheaper life cover – and the saving adds up over the years.
Another wheeze that costs you wasted money is mortgage payment protection insurance. Simon Burgess at brokers Burgesses says many lenders use mortgage payment protection insurance – protecting monthly repayments against unemployment, illness or accidents – as a “scam” to boost profits.
Posing as a potential customer, Mr Burgess phoned 25 top lenders to obtain a mortgage with mortgage payment protection insurance – and all failed to mention he could get a better rate for insurance cover elsewhere, possibly saving £3,000 during the lifetime of the mortgage.
Burgess says: “In the provision of mortgages, and insurance products linked to them, we need more transparency to show who actually makes the money. Prices are driven too high by irresponsibly lending.
“In France, lenders who lend more than three times income are not supported by the courts if the loan goes wrong. On mortgage payment protection insurance, however, commission and overriders to UK lenders exceed 70 per cent of premiums and could generate annual profits of nearly £1.5 million.”
Keep shopping for the lowest loan rate, whatever Professor Miles might suggest. And don’t forget there may be other savings that the lenders are unlikely to mention.
