Real Estate Innovation

Secured Loan or Re-mortgage, The Balance of Power.

It’s been a sad fact that application fees on fixed rate mortgage deals have more or less doubled in the last 12 months according to current research.

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 Bank of England base rate was 5.75% and the average rate amongst the best 3 year fixed rate mortgages was 5.84%. This has gone down to 5.65% which is expensive comparatively speaking. Two year deals were at 5.68% and they have only gone down to 5.57% in the same time period.

The recent, very high profile, problems in the banking and mortgage industry have meant that lots of people are jumping the gun a little and opting for the lowest interest rate deal they can possibly find. They should also consider the fees associated with these lower rate loans as when added together over a two or three year deal these are working out to be much more expensive.

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.

With Clients wishing to raise capitol intermediaries should now be changing their strategies for raising this money in light of the credit crunch. Also changes in the Consumer Credit Act have come into force and this means that a secured loan could probably be a better option than re-mortgaging.

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.