Leeds 3yr fixed mortgage - 5.9%

GemmaC

Hi,

We need to remortgage within the next couple of months and I want to sort it out sooner rather than later. I've hunted around and I can't seem to find much under 6.5% - our current deal is 5.44% and ends 31st August. Our property is worth £265k/£270k and we are looking to borrow around £207,000, so about 78% LTV.

I've found a deal with Leeds BS for 5.9% but I need to be quick if I want it - they are apparently changing all their rates on Thursday. There are some of conditions:

£999 product fee
£200 valuation
Must take house & contents policy with Norwich Union or 0.24% is applied to the rate

Do these sound very unreasonable? I've worked out the difference between the higher interest rate and no fees and it's better value by a long way to take the fees. Every lender I've looked at is charging similar fees and because we want a 3-year and have ovr 75% to borrow we seem to be far more restricted.

You can overpay each month by 10% but the main issue is their interest is calculated annually. We intend to overpay by £800 - £1000 a month. How much of a problem is this likely to be? Would I be better off going with a higher rate of, say, 6.39% so that we get the interest calculated on a daily basis? I was told on the phone it would come off the equity and not off the interest but I don't really understand how this works. Will we lose out compared to being on a higher rate and having interest calculated daily? We are intending to pay as much off over the next 3 years as we possibly can so it's important to us to get the best deal - and quickly as the rates seem to be shooting up everyday!

Thanks in advance,

Gemma

martinman3

GemmaC wrote: »

You can overpay each month by 10% but the main issue is their interest is calculated annually. We intend to overpay by £800 - £1000 a month. How much of a problem is this likely to be? Would I be better off going with a higher rate of, say, 6.39% so that we get the interest calculated on a daily basis? I was told on the phone it would come off the equity and not off the interest but I don't really understand how this works. Will we lose out compared to being on a higher rate and having interest calculated daily?

.

Please note that I am not a mortgage expert, just trying to help. You should check everything with a lender/adviser.

Their website says of the product

10% capital repayments are allowed each year without penalty

.
which is not the same as overpayments of up to 10% each month. I am sure that the latter would require daily interest calculation.


Maybe someone will correct if I am wrong but this may mean that each month you place your overpayments in another account and each year when you have up to 10% of the capital saved you can repay it to reduce the capital.
As the interest on this account would be taxed, if the account didn't pay more than 5.9/0.8 = 7.375% (if you pay basic rate) or 5.9/0.6 = 9.83% (if you pay higher rate and declare it on tax return ) you would be slightly worse off than with an equivalent mortgage which was flexible and allowed monthly overpayments.

Assuming £900 each month saved in for example B&B Internet Saver at 6.51% AER and after 12 months used to pay off part of mortgage.
Very roughly you would lose (7.375% - 6.51%) * 900 * 12 / 2 = £46.71 ((9.83% - 6.51%) * 900 * 12 / 2 = £179.28 if higher rate )

Of course, these figures would change each time the saving account rate changed.

You really must confirm the overpayment procedure for this mortgage.

Also, read this thread about offset mortgages which may be worth considering. http://forums.moneysavingexpert.com/showthread.html?t=471

GemmaC

Thank you I will look into this further. I have asked 3 separate people on the phone and none of them seem to understand how it works.

They offered me the deal at £1334 a month for the mortgage and buildings/contents (supposedly 5.9% on a mortgage of £207,000 but I'm not sure how it adds up - the buildings and contents must be quite a bit!). Or if I don't take the buildings and contents they add 0.24% to the rate, which makes the payments £1305 a month, at the rate of 6.14%. Which at the moment, seems like the best I'm going to get for a fixed rate. I'm not sure it's worth paying the extra and having a lower rate for the added buildings and contents insurance - I could get it cheaper than that!

I've noticed the HSBC rate-matcher might offer us a matched rate of 5.44% for 2 years - but with a £1399 fee. However I'm wondering if this might actually be a good deal for us...although I'm not sure about being fixed for just 2 years. But is it too risky in this current climate? Our broker suggested we fix for 3 years and then things might have changed and stabilised a little. Also 3 years time is the sort of time we'll probably think about having children.

Either way, with the HSBC one I think we would be safer in terms of the overpayments.

Thanks

Gemma

Dan_Collins_2

WIth a memory like mine this may be way off! However I seem to remember that a capital payment is an amount of more that £500 or £1000 and the interest is calculated then. Anything less is an overpayment and is calculated later. Leeds still use annual interest.

Nationwide had a good 3 year deal with £599 or £999 fee options.

GemmaC

I'm not sure - I can't find enough detail on their website to confirm this. I've now noticed it does say "Capital Repayments" though. It's very confusing - the amount we'd be overpaying would be equivalent to £500+ a month definitely.

I saw those Nationwide deals - they went up today unfortunately! Also they are based on 75% LTV - we are just short unless we're lucky enough to have our house valued at £275k...and in this climate I haven't a clue what it's worth. Is it worth risking a valuation coming back at so much less and then the subsequent rate going up?!

GemmaC

Well I am now so completely confused that I think I am going to look elsewhere. I am getting conflicting information on the phone - it seems that we'd only be allowed to overpay by 10% of what we're paying each month, rather than 10% of the total amount that we have borrowed - which is significantly less than we wanted to overpay by.

Very confusing - these capital repayments seem to be chargeable I think.

SwitchyChick

First Direct are doing 5.89% offset mortgage fixed for 2 years. £399 arrangement fee & £99 booking fee. http://www.firstdirect.com/mortgages/rates.shtml
They are currently taking 12 weeks to process so I'd get in quick! I booked this one with them yesterday and our mortgage is due for renewal on 2nd October!
Good luck.

GemmaC

Thanks for this but I've put in our salaries and although we're on £71k combined it says they won't lend us as much as we are looking for - only £186k instead of the £205k we would need. Also we'd rather be fixed for 3 years than 2.

martinman3

I have spent some time looking at the offset fixed mortgages out there and 75% LTV is the magic figure. On a previous thread you mention having savings in a ISA.
I know this could be a risky stategy but have you calculated how much you would need to redeem on your current mortgage to bring the LTV down to/below 75% ?

Based on your predicted overpayments you could have saved about £10k in an offset mortgage after the first 12 months. The danger period would be those 12 months when you could be vulnerable.

GemmaC wrote: »

Thanks for this but I've put in our salaries and although we're on £71k combined it says they won't lend us as much as we are looking for - only £186k instead of the £205k we would need. Also we'd rather be fixed for 3 years than 2.

Ignoring the First Direct calculator the site http://www.firstdirect.com/mortgages/offset-indetail-howmuch.shtml says

joint application: 3.5 times the higher gross annual salary plus 1.5 times the lower gross annual salary or 2.75 times the combined gross annual salaries.

which would give you £195250 so if you have enough savings/can save the difference it is do-able.

By the way, which area of the country do you live in ?
Some building societies are restricting products to locals only.

GemmaC

I couldn't agree more - 75% LTV is definitely the magic number - loads more lower rates available too on other products. We would have 75% LTV if our house was valued at £275k...but in this climate I'm not sure whether to risk putting that down and then a valuation coming back at £265k, say.

Unfortunately even with those calculations the First Direct figures still don't give us £205k, we're just a bit short, unless they were open to negotiation!

I plan to use what is in the ISAs to bring our mortgage down to £205k - it's currently £220k - then each month overpay rather than build up substantial savings again. Our broker mentioned offset but after discussion we thought that overpaying was the best route to take. Unfortunately he can't help us any further as he's not getting nearly as good rates as we can get directly with the lender!

GemmaC

Sorry I forgot to say we're in the South East - we haven't had a problem yet in terms of area but I know Newbury are one that are restricting to their own area.