Real Estate Innovation

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.

All the recent publicity recently about the credit crunch and the bank’s fluidity problems has stoked the near panic in people and they are tempted to grab the best percentage rate deal they can find. The problem is that very often they overlook the fees which when added to the 2 or 3 year deal make the mortgage a lot more expensive than it first seems.

There could be a nasty shock when it comes to the fee which is charged as they have surely increased beyond proportion during the past year. What people should focus on is the true cost of their loan by taking into account fees as well.

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.

The major impact of the changes to the Consumer Credit Act is the fact that every secured loan for residential purposes is now under the umbrella of the Consumer Credit Act and therefore there’s a compulsory cooling off period which takes pressure of the individual and also there is a ceiling on early repayment charges of two months interest (depending on when in the month they tell the lender). When you also take into account that there are no valuation, conveyancing, booking and application fees it doesn’t take a genius to work out that these secured loans are probably more advantageous to the client.

The whole point here is that if you are tied in to your current mortgage provider, in some cases even if you’re not, and wish to raise some money or simply restructure some finances then consider a secured loan as an alternative to a re-mortgage. The protection of the Consumer Credit Act and also the saving of the upfront fees and the much smaller early repayment charges mean that a secured loan could be much easier to arrange and quite a lot cheaper.