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Your guide to beating the remortgage rush

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  • Your guide to beating the remortgage rush

    March 9, 2008
    Your guide to beating the remortgage rush
    The best deals are fast disappearing as lenders struggle to cope in the crunch. We offer some tips
    Elizabeth Colman

    HOMEOWNERS were dealt a double blow last week as the Bank of England declined to cut interest rates and some of our biggest mortgage lenders raised rates regardless.

    Abbey, Britain’s second-largest lender, hiked prices for the third time in a fortnight taking its two-year remortgage fix from 5.77% to 5.89% and its two-year tracker from 5.86% to 6.14%. Nationwide, the UK’s biggest building society, has increased trackers by 0.25 percentage points.

    Brokers have been inundated with calls as tens of thousands of borrowers have rushed to remortgage in response to disappearing deals. Ray Boulger of John Charcol said: “The problem is getting worse – I can’t remember a time when we’ve had so many lenders changing criteria or rates so frequently.”

    Between 40,000 and 60,000 borrowers will be remortgaging every month between now and August, according to estimates from the online broker Mform. Homeowners who took out a typical two-year fix of 4.29% in 2006 face a repayment shock of £200 a month on a £200,000 loan, assuming they take the average two-year fix now at 5.5%.

    The situation has prompted the Financial Services Authority to urge the 1.4m borrowers coming to the end of fixed-rate deals to start planning now. It announced a £2m campaign to educate them about their options.

    Andrew and Katherine Millar, who live in Kent, face an increase in monthly repayments of £234 when their fixed-rate mortgage with Halifax at 4.49% expires this month. They look set to be forced onto the lender’s standard variable rate of 7.25% after failing to remortgage their £143,000 loan quickly enough. The couple are finalising a deal with Accord through broker L&C at 5.49%, which will give them monthly repayments of £913 – £81 more than their previous deal, but significantly less than the SVR.

    Millar, 41, a civil servant in the Foreign Office, said finding the best deal was almost impossible. He added: “Some of the best deals weren’t available through brokers and I was appalled at the lack of competition when it came to arrangement fees.”

    The Bank of England’s decision to leave rates at 5.25% to curb rising inflation will put more pressure on homeowners. An influx from panicked borrowers has slowed down the processing of remortgage applications, making it imperative that you act as soon as possible if your loan is up for renewal. There is now an almost two-week waiting list for First Direct’s two-year fix at 4.75%, which has been top of the best-buy tables all year.

    Abbey, Cheltenham & Gloucester and Halifax have all responded to the rise in demand, culling good deals including those only available through brokers in the past fortnight at unseemly speed.

    Boulger said: “We are in a bizarre situation where lenders are worried they won’t be able to fund loans over the long term because of the credit crunch. As soon as the lender finds itself at the top of the best-buy tables, it gets flooded with business and so pulls the deal. Other lenders don’t want to pick up the business, so they follow.”

    We outline how to secure the best deal.

    Act fast

    Despite signs that the government will unveil measures in this week’s budget to free up the mortgage market, brokers advise homeowners to start examining their options as soon as possible.

    The chancellor is expected to propose a system whereby the government gives the least risky mortgages an official seal of approval. He believes the tactic will encourage the industry to lend freely again as the fear of taking on bad loans has contributed to the credit crisis.

    The London interbank overnight rate (Libor), the rate at which banks lend to each other in the wholesale markets, is rising again – from 5.59% immediately before February’s cut in Bank rate to 5.77% now.

    However critics said the plan, which if it was adopted would not come into force until at least autumn, is flawed. Boulger said: “It didn’t work when the ratings agencies ranked mortgages – it’s hard to see how the government would do a better job. I therefore doubt it would be worth borrowers waiting for better rates.”

    Booking ahead

    Brokers recommend borrowers start looking for the best deal three months before their mortgage term is due to expire. And most lenders will allow borrowers to book a cheap deal up to six months in advance.

    If something better comes up, you can always change the rate, provided you haven’t paid a nonrefundable reservation fee.

    Don’t rely on your broker

    With lenders culling deals by the day, brokers have been less able to access the cheapest offers. Borrowers should therefore check independently for the best rates. The cheapest two-year fixes – from First Direct at 4.75%, Dunfermline building society at 4.79% or Skipton building society at 5.19% – are available only direct from lenders, as is the cheapest three-year fix from the Post Office at 5.34%.

    The cheapest two-year tracker, from Cheltenham & Gloucester, at 4.78% with a 2.5% arrangement fee, is available via brokers – however, Coop Bank’s two-year tracker at 5.24% with a £999 fee is available only from the lender. Simon Tyler of Chase de Vere Mortgages said: “One way for lenders to stop the flow of business is to withdraw cheap broker exclusives so the business they do write is more profitable.”

    Abbey’s two-year fix at 5.54% with free legal fees and valuations is one deal that was popular among brokers but will be withdrawn this weekend.

    Fixed rate or tracker

    After a period where trackers bore the brunt of most rate increases, lenders are starting to raise the price of fixes. In addition to Abbey’s deal, Scottish Widows will increase its two-year fix this week from 5.29% to 5.79%.

    However, short-term fixes still offer better value than some trackers – especially if rates stay on hold in the short term.

    A borrower who takes out a two-year fix with First Direct will pay £81 a month less than with a two-year tracker from the Coop, if Bank rate stays on hold, assuming a £200,000 loan.

    They will still be £40 better off a month if Bank rate falls once more this year. The First Direct offer could disappear by the end of the month, though.


    WOOLWICH has smashed the record for the highest flat fee to arrange a mortgage, introducing a £15,000 charge for some borrowers taking its lifetime tracker, wrrites Elizabeth Colman.

    The fee applies to loans of more than £3m at a rate of 6.20% for the life of the deal.

    Even for smaller loans, the fee is still hefty. Borrowers who take out a loan of more than £2m face a £10,000 upfront charge. Previously, the rates and fees on such loans were individually negotiated.

    Woolwich, owned by Barclays, has also hiked the fee for loans between £1m and £2m to £5,000 – five times the previous fee. In addition, customers must pay a £100 “rate-switch fee” if they choose to switch to another loan.

    Abbey previously held the record for the highest flat fee with its £10,000 arrangement fee for all loans above £1m.

    Lenders are clamping down on high-end mortgages in the wake of the credit crunch. Barclays recently cut the maximum loan available on all of its standard products to £1m. Loans over that amount will now be priced on a case-by-case basis.

    Lenders are also moving to tie borrowers in to lifetime trackers for longer periods. Cheltenham & Gloucester, Woolwich and Nationwide have introduced early redemption charges for the first three years.

    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx