After Mark Carney, the governor of the Bank of England explicitly stated that there are no expectations of an imminent increase to UK interest rates, an assessment of the market shows that rates are at the lowest level seen year on year since 2007.
As of early February 2016, the average 2 year fixed interest rate fell to 2.52 per cent, a significant difference when compared to the 3.14 per cent average recorded during the same period in 2015. As Carney recently confirmed that interest rate rises are not likely to be implemented until early 2017, the expectation in the market is that rates are likely to remain stable for the remainder of 2016.
Given that these numbers would suggest that this is now a market where bargains can be secured, it’s fair to say that there are a range of options for contractors to secure for mortgage finance. However, this enthusiasm should be tempered with caution, as many UK lenders are providing these seemingly competitive options, by loading certain headline offers with high arrangement fees.
Simon Butler, Associate Director for Contractor Mortgages Made Easy remarked: “The range of low rates available on the market has brought a wave of interest to the mortgage sector in recent months. For anyone looking to buy or simply re-finance an existing debt, there are now a great range of choices available to secure a relatively cheap loan.
“With that in mind, it’s important to remember that the lowest rate on the market may not necessarily be the optimal choice to make a saving.”
Butler continued: “Arrangement fees have remained steady over the past couple of years, for the best loans in the market. It’s not been unusual to expect to pay an initial £999 fee for a top rate, with many lenders also tagging on additional charges to offset the cost of providing such attractive arrangements.
“But, in recent months many lenders are charging even larger fees, with some of the lowest options in the residential market requiring £1499 to secure and even as far as £8,000 for the lowest rates available for a buy to let mortgage.”
Demonstrating the importance of considering the merits to paying fees for a lower rate, Butler explained the differences between fee free and fee to pay options. He said: “Based on a capital and interest repayment mortgage of £180,000, over a 20 year term, Virgin Money offer a headline 2.24% 5 year fixed rate up to a 65% loan to value, that would cost £936.34 per month, with a £995 arrangement fee to pay.
“Compare the same terms on a 5 year fixed rate with Metro Bank, at 2.44% with no arrangement fee, and the monthly repayment would be £948.57. That saving of £12.23 per month equates to a difference of £733.80 in favour of Virgin Money, over the initial 5 year tie-in. However, once you remove the £995 arrangement fee that Virgin Money require to secure their rate, the saving is no longer evident, making the Metro Bank offer the more favourable choice.”
Article By: Ratchelle Deary, Public Relations Manager at Contractor Mortgages Made Easy
Media Contact: Ratchelle Deary, Public Relations Manager
Tel: 01489 555 080