Save money on your house

Saturday, 16 February, 2008

LAST week's interest rate cut by the Bank of England could be just the catalyst for mortage holder to seek a new deal. The Bank cut 0.25 per cent to a new rate of 5.25 per cent.

Remortgaging is still a good way to save on mortgage payments but, unfortunately, only a handful of lenders offer existing clients competitive rates to stay with them.

Most mortgage lenders put their sales effort into securing new customers rather than trying to retain current ones. They rely too heavily on their loyalty.

Ask an independent financial adviser (IFA) who specialises in this market for their recommendations. Independent Women, an Edinburgh-based IFA firm, says strong remortgage deals are offered by both Furness and Nationwide on a variable tracker basis.

"Competitive lifetime tracker deals which prevent the need to remortgage every few years are a great alternative," says Kate Philip of Independent Women. She tips both Nationwide, with base rate plus 0.44 per cent with no fee, and Cheltenham & Gloucester, on base rate plus 0.38 per cent for a £995 fee.

If opting for a non-fixed deal, ask a prospective lender for their policy on when it alters the rate. Some apply Bank of England changes immediately, such as Abbey, Halifax, Lloyds TSB, Nationwide and Woolwich, but many alter at the start of the following month, boosting lenders' profits by millions.

Some lenders fail to pass on a full cut. Although base rate was reduced in December, about one-fifth of lenders did not pass on the full benefit, particularly for those on standard variable rate (SVR) arrangements. In fact, SVR loans last year rose on average by 14 per cent.

If you feel rates are likely to fall further, consult an IFA for a better deal. "There is ample scope to cut rates to below 4.5 per cent before the year end," says AMB Amro Asset Management.

A capped loan could be one answer, where the lender sets the highest rate you will pay, but reduces it in the light of market conditions. National Counties quote 5.9 per cent, capped against 7.59 per cent SVR, with a £595 booking fee for a loan running to July 2010.

A discounted plan is an alternative. Check that there is no extended redemption penalty. Chesham Building Society offers ten years at 5.69 per cent, while its SVR is currently 7.45 per cent. A £595 arrangement fee applies.

Offset plans are becoming increasingly popular. This is where both your savings and loan are put into the same pot. The former reduces the cost of the mortgage and means you can pay it off in a far shorter time. Scottish-based Intelligent Finance is one of the leaders.

For certainty of budgeting, a fixed rate is the answer. A two-year at 4.75 per cent with First Direct, but only offering up to 80 per cent loan to value, has a £1,498 fee. Five and ten year loans are available from Yorkshire Building Society and Newcastle.

Source:http://business.scotsman.com/personal-finance/