Do Not Rely on Best Buy Tables for Your Mortgage – Do the Maths First
The UK character market is showing slight signs of an improvement, mainly down to mortgage lenders approving more loans and low interest rates.
The government’s Help to Buy scheme is also helping first time buyers and new home owners get on the character ladder and the ‘Funding for Lenders’ programme method mortgage lenders have access to funds more easily to back loans.
Various lending institutions are also doing their bit to encourage more borrowers back to the market. Halifax, which is part of the UK tax payer owned Lloyds Banking Group, has just announced plans to help first time character buyers, by paying the stamp duty for them up to a limit of £2,500. This should ease the cost for a number of buyers.
Stamp Duty Land Tax is payable on any character bought for more than £125,000 (houses sold for less than this are exempt). There is a 1% tax on similarities sold for between £125,000 and £250,000, 3% on similarities between £250,000 and £500,000 and then 4% for those buying similarities worth up to a million, 5% if buying up to 2 million and for the elite few buying already more expensive houses; well they will confront a whopping 7% tax bill.
Halifax is hoping to gain more customers to the first time buyers market by offering the motive of covering stamp duty up to £2,500. This method buyers will be able to buy a house up to £250,000 and have any stamp duty covered by the lender. First time buyers represent a huge section of the housing market and accounted for up to around 40% of all house purchases in 2012.
Halifax will help cover the stamp duty by enabling the buyer to get the funds by a cash back option with their mortgage. The solicitor dealing with the legal side of the buy will receive a 1% cash back on completion to pay off their obligations to cover the stamp duty.
The average cost to buy a home now amounts to thousands on top of the actual buy price by the time stamp duty, legal costs, removals and other associated costs are taken into account. Often first time buyers over look the need for stamp duty land tax to be paid as they are concentrating so hard on saving for a place. The Halifax will offer a two year fixed rate mortgage at a rate of 3.24% to anyone that can save a 20% place, although if the buyer can only raise a 15% place, then the rate rises to 3.79%.
It is hoped more mortgage lenders will start to offer similar packages. When the government implemented the stamp duty holiday last year, there was a marked increase in first time buyers getting on the character market.
However, as with any financial product, you need to read the small print carefully and take specialized advice. For example you may get a better deal from another lender at a lower rate, which will save you money in the long run, already if you have to stump up the money for the stamp duty tax at the start.
Also it is important to not just rely on ‘Best-Buy’ tables and comparison websites and charts as often these do not show the whole picture. Mortgage rates are at an all time low at the moment but arrangement fees and other associated costs have increased drastically in the last few years. Choosing a mortgage based on one with the lowest interest rate from a comparison chart or table in a magazine, newspaper or online, may not offer you the best obtainable mortgage or one that suits your needs.
The ‘Funding for Lending’ scheme by the government method that edges and building societies have access to cheaper funds and so mortgage rates have dropped because of this, with some of the lowest 2 and 5 year fixed rate deals every known. But lending institutions have, at the same time, increased their fees. Back in 2009 the average arrangement fee was £937, now the average fee charged on a mortgage is almost £500 more at £1,402. And some of the mortgage products with the lowest rates truly have some of the highest fees. Much depends on the amount you are needing to borrow. If you are only requiring a small loan, then you would likely be better choosing a mortgage with a higher fixed rate but lower fees, while if you are needing a large mortgage, then it is better to go for a lower rate but an higher set up fee. It is also important to take into account the length of the deal. Higher arrangement fees over a longer term mortgage offer a better deal than over a shorter term.
Whenever you are considering a mortgage, proceed with care and do the maths first. Work out what the mortgage will cost you with all fees with different lenders and you might be surprised that a deal with a lower rate but higher arrangement fee, may end up costing you several hundred pounds more than borrowing the same amount from a different bank but that has a slightly high rate and lower set up cost.