How to avoid higher home repayments
With inflation figures showing further price increases, homewowners who are worried that interest rates will rise this year are now being offered mortgage deals that can protect them against higher repayments. Brokers are recommending a range of options:
Split loan deals
From Monday, HSBC will offer borrowers the option of a split loan mortgage that allows customers to fix either 25, 50 or 75 per cent of their loan, with the remaining percentage on a lifetime tracker rate. The fixed rate depends on the proportion of the mortgage that is fixed and the loan-to-value of the deal. Rates start from as low as 2.49 per cent for the 25 per cent fixed option at 70 per cent loan-to-value. The product has a £999 fee and is available to customers borrowing up to £500,000.
“The rates on offer look very good,” said David Hollingworth of London & Country Mortgage Brokers.
Mortgage brokers point out that many other lenders will allow borrowers to mix and match products and specify the split between fix and tracker. “However, you do need to watch out for the fees charged and check whether a fee is payable on each element of the loan,” said Hollingworth.
Switch and fix deals
Otherwise known as a “drop-lock” mortgage, these products allow borrowers to take out a tracker rate but then move on to a fixed-rate deal – with the same lender – without any early repayment charges.
Nationwide Building Society and Royal Bank of Scotland (RBS) are among the few mortgage providers that currently offer the switch-and-fix option. However, Nationwide charges a reservation fee for the new fixed rate while RBS allows customers to switch free of charge provided they have been on the tracker for at least three months.
Nationwide has a two-year tracker at 2.68 per cent – bank rate plus 2.18 per cent – available up to 70 per cent loan-to-value. RBS has a two-year tracker at 2.59 per cent – bank rate plus 2.09 per cent – at up to 60 per cent loan-to-value.
The potential downside is that the lender’s fixed rates are likely to have risen by the time the borrower decides to switch.
Capped rate mortgages
A capped rate mortgage is another option that limits a borrower’s exposure to rising rates. Capped rates cannot climb above a pre-set rate, known as a cap.
Brokers recommend a capped rate for about five years. Britannia/Co-op has a five-year deal at 2.99 per cent – bank base rate plus 2.49 per cent – with a cap of 5.99 per cent available up to 75 per cent loan-to-value. It comes with a £999 fee.
“The best five-year tracker rate at 75 per cent loan-to-value is 2.84 per cent from ING so a borrower will not pay much of a premium – just 0.15 per cent – to have the security of the cap,” said Nigel Bedford of Largemortgageloans.com.
Interest rate insurance policy
RateGuard is an insurance policy offered by insurer MarketGuard that pays out a monthly sum if rates rise above a certain amount.
Premiums are set according to the size of the mortgage and the rate insured. For example, protecting a £500,000 repayment tracker mortgage against a rate rise of more than 1 per cent costs £193 per month with a two-year policy. This drops to £55 per month if the policyholder wants to protect the same mortgage against a rise of more than 3 per cent.
Brokers warn this option is likely to be the most expensive
UK Unemployment
Unemployment in Britain rose by a record in the last quarter to 2.38 million, underlining that a recovery from the worst recession in decades is likely to be long and hard
The number of Britons out of work increased by 281,000 in the three months to the end of May, the most for a quarter since records began in 1971. That increase drove the unemployment rate to 7.6pc from 7.2pc.
Business leaders have warned that the spectre of unemployment is likely to make any recovery protracted. Retail chiefs ranging from the boss of Tesco to the head of Argos have said that the fear of redundancy is hanging over consumers. Charlie Bean, the deputy governor of the Bank of England, said this week that the economy is probably bumping along the bottom
Financial markets took some comfort from separate figures that showed that the number of people claiming jobless benefits in June climbed less than expected.
Figures from the Office for National Statistics showed that 23,800 joined the dole queue last month. Economists had predicted 41,300 would. Sterling strengthened by half a cent against the dollar to $1.6350 by late morning trading. Meanwhile, the blue-chip FTSE 100 index was 1.4pc stronger at 4297.
“While the economy appears currently to be close to at least temporarily stabilizing, unemployment is a lagging indicator and the extended deep economic contraction seen in the second half of 2008 and the first quarter of 2009 will continue to feed through to hit the jobs market pretty hard for some months to come,” said Howard Archer, an economist at Global Insight.
Today’s figures come as the Organisation for Economic Cooperation and Development (OECD) forecast that about 30m global jobs will have been lost by the end of next year.
Angel Gurria, the OECD’s secretary general, said that about 30m people in developed countries will have lost their jobs between the end of 2007 and the start of 2010 as the economic downturn pushes most countries into recession.
“The massive unemployment numbers are putting a lot of pressure everywhere,” Mr Gurria said as he released the OECD’s latest report late on Tuesday. He said job markets typically lag the recovery in economic output as employers squeeze more production out of workers through longer hours before hiring more people.
The jobless rate in the eurozone has surged to 9.2pc – a decade high – as the delayed effects of recession and the overvalued currency trigger a wave of lay-offs. Almost 400,000 jobs were lost across the eurozone in April.
Spain has been particularly badly hit, with the unemployment rate among young people reaching 36pc.
Unemployment in the US rose to 9.5pc in June, the highest in 25 years, and White House economists are predicting that it could hit 10pc in the next few months.
