In the Current Market a Secured Loan May be a Better Option.
According to our current analysis application fees have practically doubled this past year on the most popular, best deal fixed rate mortgages.
During the last 12 months the five most competitive two year fixed deals’ fees have increased from 998 to 1,500. Three year fixed deals’ fees have also increased from 575 to over 1,100.
Last October the base rate was 5.75% and the average interest rate of the top five two-year fixed rate mortgages was 5.68%, but now it is 5.57%. Three-year fixed deals have seen a similar tiny reduction in interest rates with the average rate of the top four deals moving from 5.84% to 5.65% over the same period of time.
After all the panic that’s occurred in recent weeks in the mortgage market lots of people may be tempted to grab the best deal they can and could wrongly focus on rates to exclusion of other considerations.
The large increase in application fees means that they now form a much more significant portion of the cost of the loan and really need to be considered just as importantly as the actual interest rate, especially in a relatively short term mortgage deal.
There are still many good deals out there for people with substantial deposits or equity in their home and strong credit ratings. Unfortunately many people will not be eligible for them as lenders are increasingly taking a tougher line.
All brokers and intermediaries should reconsider their strategy in helping clients wishing to raise capital in the light of the recent credit crisis and changes to the Consumer Credit Act. The changes in the market and to the Consumer Credit Act mean that a secured loan could be a much better option for many clients.
These new changes changes to the act mean that all secured loans for residential purposes of any size come under the Consumer Credit Act and therefore every loan has to have a cooling off period, so the client is not pressured and an important factor is that early repayment charges are a maximum of two months interest depending when in the current month they notify the lender. When you add in that there are no upfront fees in the shape of application fees, booking fees and valuation and conveyancing costs then it’s pretty easy to work out that on a direct comparison secured loans work out to be better value for clients.
If your mortgage deal has some time to run and you’re tied in but you want to raise some capital or consolidate some other debts then looking at a secured loan could be a better option than a re-mortgage.You now have the added protection of the Consumer Credit Act, a lack of upfront fees to enjoy and of course much smaller early repayment charges and you’ve no need to contend with the ERPs on your current mortgage deal.
