Moneywise Mortgage Awards 2009
The UK’s once sun-drenched property market is now suffering from severe bad weather.
Historically low interest rates, house prices around 22% off their 2007 peak and desperate government bailout measures have done little to melt the frozen mortgage landscape – and lenders are still reluctant to grant a mortgage to anyone without a substantial deposit.
The current economic uncertainty has curbed the appetite of mortgage banks to lend. Mortgage approvals have fallen dramatically since 2007 with the most competitive loans reserved for people with large deposits (or equity stakes if they're remortgaging) and squeaky clean credit histories.
However, just because there is a chill in the air it doesn’t mean that the demand for mortgage products has disappeared. House prices may have further to fall, lenders may well remain reluctant to lend and the economy may remain in the doldrums for some time to come – but none of these factors can ever remove the need for a roof over our heads.
It is with all these factors in mind that Moneywise is pleased to announce the winners of this year’s Moneywise Mortgage Awards. In such a difficult and challenging climate, it’s crucially important to find a mortgage lender that consistently offers the most competitive products on the market.
So whether your current mortgage is coming to an end and you don’t know where to turn, you’re looking to finally jump onto the property ladder or you’re a landlord looking for a new deal or investment opportunity, you can be sure that a Moneywise Mortgage Award winner has time and again proven itself ahead of the pack and deserves your valued business.
Economic uncertainty abounds and job security is not what it once was, so knowing precisely how much you need to put aside to cover your mortgage costs each month is of even more importance.
These mortgages enable borrowers to plan for the future by allowing them to lock into their rate over a fixed term, typically two, three or five years. But choosing the wrong fixed-rate deal can leave you out of pocket, as the true cost paid over the product’s term is not just based on the rate achieved.
High fees can wipe out gains made by low rates, for example, while percentage-based exit fees can be punishing if you have a large sum outstanding.
With this in mind, our judges deemed Cheltenham & Gloucester to be the worthy winner this year. “C&G deserves the award for its consistent approach in the pricing of its fixed-rate products, as well as offering added incentives including overpayments, free valuations and free legal fees,” says David Hollingworth, mortgage specialist at London & Country mortgage brokers.
The award of highly commended goes to HSBC, with our judges praising the banking giant for offering eye-catching and competitive fixed rates in its quest to grab market share from rivals.
LIFETIME TRACKER MORTGAGES
Although the five successive base-rate cuts by the Bank of England from October 2008 sorely punished savers, interest rates on new lifetime tracker mortgages remained stubbornly high.
Nevertheless, these deals became a popular option last year with borrowers keen to take advantage of the Bank of England’s attempts to spur the UK’s flagging economy – a lucky few paying off existing tracker deals actually saw their monthly interest payments fall close to zero.
A word of caution, however, as although interest rates may well stay low for some time, they will have to rise eventually and if you are on a tracker mortgage you must be confident you can afford for your repayments to increase.
Our panel crowned Woolwich the winner in this category, not only for offering its customers the most competitive rates and loan-to-values, but also for products that gave borrowers added peace of mind.
Sally Laker, managing director of mortgage broker Mortgage Intelligence, says: “Woolwich always tends to have market-leading products with headline rates and incentives. And although some of these are capped, they do provide customers with additional security against volatile market conditions.”
Runner-ups in this category are HSBC and First Direct, both for offering low rates and LTVs.
Borrowers that chose a discounted rate mortgage last year will also have had good reason to cheer their decision as these products are linked to the lender’s standard variable rate (SVR), which is in turn linked to Bank of England base rate. However, because a lender has free rein over when it moves its SVR, these deals often work out more expensive than trackers in the long-run.
Taking first place in this category this year is The Co-operative bank.
“The Co-op offered a wide choice of competitive discounts for a good part of the year, and all products offered flexible features,” says Ray Boulger, senior technical manager at mortgage broker John Charcol.
And once again there was a tie for second place, with two small building societies this time, Principality and Market Harborough, sharing the prize. Hollingworth believes that both have flown the flag for the smaller mutual lenders, offering discounted deals that competed and bettered those on the high street.
Navigating the mortgage maze when it comes to remortgaging has become an increasingly tricky task. While it’s vital you always get the best product to fit your circumstances, the combination of rates and fees, legal costs and exit penalties can leave you out of pocket.
Throw the falling base rate and average LTVs into the equation, and it’s easy to see why the number of homeowners paying their lender’s SVR is increasing. However, it’s always worth scouring the market to see what else is out there rather than automatically moving on to your lender’s SVR or accepting its new offer, as the chances are you’ll still be paying over the odds.
The clear winner and top dog this year for remortgages is Abbey, with all four of our judges praising it for offering borrowers competitive rates, added flexibility and free incentives to make switching lenders cheap and easy.
Hollingworth says: “Abbey has continued to remain active in the remortgage market when other lenders have pulled back, and, with it always looking to offer different fee options, it has turned itself into a key player.”
Katie Tucker, technical manager at mortgage broker Mortgageforce, agrees. “Abbey deserves this award for offering free valuations and legal fees, and mortgages can be accessed through intermediaries.”
HSBC once again takes second place, applauded by our panel for its competitive rates and novel Rate-matcher service which promises to match the rate for borrowers coming to the end of their deals.
Although the average house has lost over £34,000 in value in less than two years, home ownership remains a pipe-dream for the majority of potential first-time buyers. The days of 100% LTV mortgages and above seem consigned to history, and few have the average 20% deposit needed to get their foot on the first rung.
However, our judges believe Nationwide a worthy winner for making the dream a reality. “Nationwide deserves the award for offering first-time buyers up to 85% LTV and for offering its products through intermediaries, so first-time buyers can get access to independent advice too,” says Tucker.
Following close behind in second place is the Britannia Building Society, simply for staying in the higher LTV area for longer than other lenders and offering first-time buyers competitively priced products.
Finding a lender willing to provide a mortgage on a property that will be rented out has become a tall order for any landlord without a hefty deposit as well. But while this area has seen a sharp rise in the number of big buy-to-let players exiting, such as Bradford & Bingley, HBOS and GMAC, it doesn’t mean that there aren’t some competitive buy-to-let deals out there for those that remain.
This year’s winner is The Mortgage Works, part of Nationwide. “The Mortgage Works’s wide range of criteria continued when other lenders withdrew from these areas,” says Laker.
Highly commended goes to Cheltenham & Gloucester, with the judges impressed by its competitive rates and wide spread of fee options.
Getting a decent rate on your savings these days is a difficult task. According to Moneyfacts, a typical instant access account paid a measly 0.64% at the beginning of May. But if you use your savings or current account to offset your outstanding mortgage balance, your money is instantly working the hardest it can. This is because the offset facility of the mortgage cuts the amount of interest you pay over the long term.
The outright champion this year is First Direct, relegating last year’s winner in this category, Intelligent Finance, to second place.
the bank’s market-leading rates and all-round products that borrowers would have found difficult to ignore. Ray Boulger agrees: “First Direct’s fixed rates were very competitive and its lifetime tracker was market-leading for much of the year.”
Flexible mortgages, like offset mortgages, can shave years off the time it takes to become mortgage-free. They allow borrowers to make overpayments on their mortgage, but can also include the options of a mortgage holiday and the ability to borrow back any overpayments made.
Deciding on a winner was a close one to call, but our victor, and only winner of two Moneywise awards, is once again First Direct. Boulger explains: “First Direct consistently offered a good range of both fixed and tracker mortgages, available on an offset basis, providing borrowers with the ultimate in flexibility.”
Coming in a very close second is Northern Rock. Tucker says: “Northern Rock’s rates consistently featured in best buys in the latter half of the year, and the ability to overpay down to £1 also makes its products very flexible.”
The shortlists for the eight mortgage categories were created by analysing data provided by mortgage broker London & Country and Moneyfacts, to help pick out the top five lenders in each category that have consistently offered the best rates over the past 12 months.
The shortlist was then sent to our panel of expert judges. They were asked to choose the winners and the runner-ups based on rates; account fees; penalties; lending flexibility; the value of any freebies; service standards; and the relationship between bank base rate and SVR.
Senior technical manager at mortgage broker John Charcol
Mortgage specialist at
mortgage broker London & Country
Managing director of mortgage broker Mortage Intelligence
Technical manager at mortgage broker Mortgageforce
Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
With a tracker mortgage, the interest you pay is an agreed percentage above the Bank of England’s base rate. As the base rate rises and falls, your tracker will track these changes, and so rise and fall accordingly. If your tracker mortgage is Bank of England base rate +1% and the base rate is 5.75%, you will be paying 6.75%. Tracker rates are lower than lender’s standard variable rate (SVR) and as they are simple products for lenders to design, they usually come with lower fees than other mortgage schemes.
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.