Mortgage Reality About To Bite

The next three months will see many thousands of homeowners come face to face with reality as their cheap fixed rate deals come to an end.

The deals were taken out in August and September 2005 when the Bank’s base rate had fallen to 4.5%. At that time you could get a two-year fixed rate mortgage with an interest rate as low as 4.24%.

If borrowers do nothing and let their mortgage slip onto the lender’s standard variable rate (SVR) then if they’re on an average £130,000 mortgage they will see their repayments go up by up to £290 a month.

Looking for a new fixed rate deal is not going to make them feel any better as the lowest fixed rates are now at around 5.6% and come with huge arrangement fees attached. Even those, therefore, could add £110 to the repayments from a 4.24% rate.

When you switch providers you will have to pay an exit fee to your previous lender, together with valuation and legal fees concerning your new mortgage. These could easily get near to £1,000 on a £130,000 loan, but this will still work out much cheaper than sliding onto the SVR.

One of the most attractive products due to end soon is Halifax’s two-year fixed deal at 4.29%, which expires on 30 September. There are about 30,000 customers on this deal. If they don’t take any action they will end up on the bank’s SVR of 7.75%. On a £130,000 loan monthly payments will go up from £707 a month to £981 – an increase of £274. Another popular one is Alliance & Leicester’s 4.28%, ending on 31 October. A&L’s SVR is under review, but is likely to go up to 7.89% before then. Repayments will go up from £706 a month to £993 – up £287. A&L also has a rate of 4.24%, ending at the same time. In this case the repayment rise will be £290.

Experts suggest that anyone with a mortgage deal ending in the next few months should start looking around for a new deal now, but should steel themselves in the expectation of paying a lot more than they are now.

There are other good two-year old deals that are ending soon, such as Northern Rock’s 4.69% on 31 August, Cheltenham & Gloucester’s 4.39% on 30 September and Abbey’s 4.59% on 2 November.

Halifax is offering a range of remortgages only to existing customers. One is a two-year fix at 5.89%. Anyone moving onto it from 4.29% will see their repayments rise to £829 a month from £707 on a £130,000 loan, and will still have to pay the £849 arrangement fee.

Britannia has a good looking two-year deal at 5.69%, accompanied by a fee of £999. That’s £813 a month on a £130,000 loan and costs £20,511 over the two years. If an A&L borrower on 4.28% were to switch to the Britannia deal they would save £180 a month and £2,500 over two years rather than stay on the A&L SVR.

Tom Smith
25th September 2007

Tags: rates, standard, introductory, offer, discounted