May 28th, 2015
The UK could be on the verge of the first ever sub-1% fixed rate, after the recent introduction of a market-leading 1.07% rate, fixed for two years, from Yorkshire Bank.
Many market commentators have been taken aback by the fierce competition amid the current ‘price war’ as lenders look to undercut deals on offer elsewhere. This is, however, perhaps about to end, as Taj Kang explains.
“This is a tremendous rate, the lowest ever two year deal in fact, which can be accessed by those with a 35% deposit. Given the tumbling rates on offer, many mortgage borrowers can be forgiven for playing a waiting game before locking into a new rate.”
“This is, however, not necessarily a good move” adds Taj, Business Development Director at niche broker Contractor Mortgages Made Easy. “The small reductions by which lenders are ‘undercutting’ their rivals are beginning to show that we may have reached something of a floor for interest rates."
There is a further reason to exercise caution when assessing mortgage deals based purely on rate, as Taj explains further.
“Most of the headline grabbing rates that have been released in the last few months may seem too good to be true. For some, that is exactly the case, as they do carry significant product fees, which can offset the attractive interest rate.”
The latest deal offered by Yorkshire Bank carries an arrangement fee of £1,499, meaning that for many with mortgage balances of up to £100,000, there may well be better value sought in a product with a higher rate.
“There are two obvious reasons why it’s dangerous to make decisions on mortgage applications solely from interest rate” adds Taj. “Firstly, if you’ve a mortgage balance that is not of a significant level, even a 0.3% difference in interest rate doesn’t make a huge difference on a monthly basis. This is when you can start to see your ‘saving’ eroded by colossal arrangement fees.”
“The other, more important reason, is that a rate may appear incredibly attractive, however if you don’t meet the lender’s criteria, you could end not only missing out on the rate concerned, but also any mortgage entirely, as a declined application can cause catastrophic consequences.”
For many contractors, the rate on offer is largely a secondary worry behind which lenders will actually consider you to be a safe bet. Approaching the wrong lender, and having a declined application on your record, can cause issues even when approaching the right lender afterwards.
“Unfortunately we speak with many contractors who have approached their own bank, or have applied for particularly attractive rates, who have come unstuck when it becomes evident that the lender concerned would never have considered the application in the first place” said Taj.
“This is where a broker can save you significant amounts of time and money, by ensuring that you’re only looking at lenders who truly understand how you work; and given the many differences between contractors and how you are remunerated, this can be a real deal breaker.”
Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
Tel: 01489 555 080