Research those tempting deals and see if they’re right for you
For those of you who haven’t noticed, Leeds Building Society became the first mortgage provider in recent history to offer a zero per cent deal in the UK market. Termed the Welcome Mortgage, it is marketed to appeal to those who would benefit from initial lower monthly outgoings. Of course the majority of us would benefit from lower monthly outgoings and here is where the catch is. The zero per cent period is only for the first three or six months of the mortgage term.
There is no doubt this offer will look appealing. It is specifically aimed at people with smaller deposits who will appreciate three or six months of no interest repayments, as well as LTV rates from 80 to 90 per cent. However, is this really a good deal?
The plan is you receive a little bit of financial respite in the first few months and a low arrangement fee of £199, which includes a free valuation of up to £339. But after the first three or six months interest-free period you revert to paying the appropriate rate of interest, which is fixed for either two, three or five years. The minimum rate on offer is 3.39 per cent over a fixed term of two years with a maximum 80 per cent LTV and the initial three months interest free. After the fixed term expires, the rate shifts to the standard variable rate which is currently 5.69 per cent.
As a headline this looks like the deal of the century but look beyond the initial offer and weigh up the pros and cons; you would if you were buying a new sofa.
The mortgage market is now bustling with a plethora of deals. Just to mention a few alternatives as examples, Accord Mortgages are offering an 80 per cent LTV mortgage with rates starting at 2.44 per cent for a two-year fixed term. RBS are offering 95 per cent LTV mortgages on three-year fixed terms at 4.79 per cent switching to four per cent under the Government’s New Buy scheme. But remember to clarify additional charges such as arrangement and valuation fees.
When looking at mortgage deals it is important to look at the monthly payment as well as the overall cost for comparison and compare that across the whole market. Look at your budget very carefully, three or six months interest free might sound fantastic but bear in mind that is a small amount of time over the life of your mortgage, or even the initial benefit period you may choose.
My advice would be to always look at your options, work out what you can afford now and in the future and really get to grips with that financial commitment over the long term not just the short term.
Even if you have saved a 10 or 20 per cent deposit have you considered the actual cost of buying? There are other expenses to consider such as stamp duty. This can be anything from one to seven per cent of your total purchase price – although it doesn’t apply to properties under £125.001.
There other costs to consider such as conveyancing, valuation, survey and arrangement fees. It’s essential that you fully understand your options, as well as your financial capability and commitment.
It can be confusing and at times incredibly frustrating researching and considering all of these points on your own. I can’t recommend enough that you talk to a qualified independent mortgage advisor. An independent advisor is able to look at the variables, assess your personal situation and find the best deal that suits you.
You don’t have to take a deal with them but it usually pays to consult them rather than relying on internet research or the recommendation of your bank or building society, which will have a vested interest in its own products.
Franz Muehlthaler is a mortgage adviser with Holroyd Miller Properties, Wakefield, in association with Reach 4.