2008 a year of debt repayment

“Two year swap rates remain low at 5.56% reflecting ongoing belief in an imminent rate drop” comments Katie Tucker of John Charcol “However, lenders are not all reducing their two year fixes in response. This is because their short term cost of borrowing continues to increase: three month LIBOR stands now at 6.59%, more than ¾ of a percent above the official Bank rate, so lenders are recouping that cost via their fixed rate pricing. The time of year, plus liquidity being scarce in the market place, means there is little need for lenders to compete on rate. The US’s credit problems are strangling sub-prime lending here, making it more important than ever for the MPC take the opportunity to bring down Bank Rate, and avoid the cash dry-up spreading across the economy.”

“This is not ideal for borrowers; the credit crunch means that even the balance sheet lenders who have funds available are in no hurry to price themselves into popularity because it could bury them in business and ruin their service levels: the Woolwich for example has a one hour queue for update calls, and a one week queue to even look at new applications. It is vital that borrowers allow extra time for applications, the temptation to delay applying until after Christmas may cost remortgage customers an unexpected month on a nasty high rate if they revert to their lender’s SVR while they are waiting.”

What is available for borrowers now?

“Discount rates and trackers are the sensible choice when a rate cut is expected. Cheshire’s two year discount giving a pay rate of 5.64% has a fee of £899, and a free valuation, as well as over and underpayment flexibility. John Charcol’s exclusive Base rate tracker has a pay rate of 5.09% for a fee of 1.5%, with free valuation and legals for remortgages.

“Fixed rates should improve as a rate cut approaches, especially if a second is expected. However, for buyers looking for a two year fixed rate now, Abbey’s 5.59% is available for a £1,499 fee, with 10% overpayment facility.

“As property value increases are expected to be minimal next year, borrowers would do well to structure their budgets to allow for a year of debt repayment, whether secured and unsecured, where possible. Affordability is key for remortgagers at the moment, so borrowers should consider total cost over the few years they intend to stay on the deal, and monthly payments. For smaller loans, a percentage fee may work out best value if it buys a low rate. Lloyds TSB has a 4.98% fixed for two years, again with remortgage freebies, with a 2.5% fee. For a ten year fix Norwich and Peterborough has a rate of 5.68% for a £595 fee, with remortgage freebies and flexibility to overpay and underpay.

“Lenders are using the rate and fee pricing of mortgages to help affordability for borrowers, but this can be confusing when shopping around, so professional advice should be the first port of call for home owners who want the best deals now.”