Moneywise Mortgage Awards 2011: Winners
It's been a rough few years for the mortgage market.
The credit crunch has hit the industry hard and would-be homeowners and those wanting to move home are the ones who have lost out. Many lenders pulled in their belts and ran for cover, leaving many people looking to finance a home purchase facing an uphill struggle.
Even now, with the UK officially out of recession, albeit still suffering from aftershocks, recovery in the housing market is uncertain. Gross lending for the first quarter of 2011 was £30.1 billion, an 11% fall from the fourth quarter of 2010 and just 1% up on the first quarter of 2010.
But not all lenders have shied away from the task, and the Moneywise Mortgage Awards 2011 serve to honour those that have risen to the lending challenge, as well as pointing you, the customer, in the direction of the best deals.
Our panel of experts has looked at the charges, customer service and extras that the best mortgage products offer, helping you find the best deal for your circumstances.
BEST LENDER FOR FIXED RATES
WINNER - Yorkshire Building Society
HIGHLY COMMENDED - HSBC, ING Direct
Since the Bank of England base rate hit a record low of 0.5% in March 2009, homeowners on a variable-rate mortgage have been enjoying historically low repayments, while anyone on a fixed rate has been left kicking themselves.
However, this could soon be changing. If the experts are right and interest rates rise this year, borrowers now on tracker rates will start looking more favourably on the fixed-rate market.
This category looks at which lenders have managed to offer competitive and creative fixed-rate products even throughout the tracker heyday.
This year's winner, Yorkshire Building Society, has continued to offer high loan to value (LTV) products with aggressive pricing at a time when many lenders have played it safe around the 75% LTV mark.
"Yorkshire has market-leading rates and low fees, and offers competitive rates at higher LTVs - all-in-all, an unbeatable combination," says Melanie Bien, director at Private Finance.
This year's runners-up are HSBC and ING Direct. ING Direct was praised for having an "easy online process", while HSBC was credited for its "consistently good pricing".
BEST LENDER FOR DISCOUNT MORTGAGES
WINNER - ING Direct
HIGHLY COMMENDED - Coventry Building Society
At a time when austerity is the name of the game, the word 'discount' is sure to get everybody's attention. With a discount mortgage, the homeowner pays a rate set a specified amount below the lender's standard variable rate (SVR). This discount applies for a set number of years before the rate reverts to the SVR.
Discount mortgages have been around for some time, but the number of products available has increased over the last couple of years, and this is thanks in no small part to this year's winner, ING Direct.
"Discounted rates have increased in number to offer an alternative to tracker rates, and ING has been extremely well priced in both areas," says David Hollingworth, mortgage specialist at London & Country.
Andrew Montlake, director at brokerage Coreco, also praises ING Direct. He says it has "very competitive pricing and some excellent products. The no-penalty lifetime trackers are excellent."
Highly commended in this category was Coventry Building Society. "Coventry has offered very competitive lifetime rates for most of the year, and is one of the few lenders to offer early repayment charge-free rates, which are also flexible," says Ray Boulger, senior technical manager at John Charcol.
BEST LENDER FOR CURRENT ACCOUNT OFFSET MORTGAGES
WINNER - Yorkshire Building Society
HIGHLY COMMENDED - First Direct, Clydesdale
Savings rates are still pitiful, given the rock-bottom interest rate. Because of this, savers are looking to find alternative ways to make their money work for them.
An increasingly popular option is to offset your savings with that provider against your mortgage. This means you only pay interest on the mortgage, minus your savings - however, you sacrifice interest on those savings in return.
Last year, Yorkshire Building Society was pipped at the post for first prize in this category and had to settle for second spot, but this year the society comes out on top.
"Yorkshire is a lender that's clearly committed to offsets, with dozens to choose from on a fixed and tracker basis," says Bien. "Pricing is good and there is a range of LTVs and fees to suit all customers."
Boulger agrees. He says it's one of the few lenders to offer offsets on fixed rates, including some as long as five years, and it only charges a small premium over its non-offset fixed rates.
Last year's winner - First Direct - was highly commended this year. "Now an established player in the offset market, First Direct offers good flexibility and the ability to offset current account and savings accounts," says Hollingworth.
First Direct shares the runner-up spot with Clydesdale Bank, which Montlake says has shown consistency in terms of product pricing and good service standards.
BEST LENDER FOR BUY-TO-LET MORTGAGES
WINNER - Coventry Building Society
HIGHLY COMMENDED - The Mortgage Works
The buy-to-let market is making something of a comeback. In the first three months of 2011, the number of buy-to-let products almost doubled on the same time period last year, according to research by Mortgages for Business.
The market took a battering as lenders withdrew from the buy-to-let sector, but with first-time buyers struggling to get on the property ladder, residential landlords are more in demand than ever.
The lenders in our buy-to-let category all worked hard to maintain a presence in the buy-to-let arena. This year's winner, Coventry Building Society, had a particularly good year, and this deserves to be recognised, according to Hollingworth.
"Coventry has performed well in the buy-to-let market and offers value and something different by charging flat fees rather than percentage fees," he adds.
The Mortgage Works took the runner-up slot, winning praise for its consistent support to the buy-to-let market.
"The Mortgage Works has exceptional products and service," says Montlake. "The provider's ability to lend to houses of multiple occupancy and limited companies, and its light-refurbishment product, means that it's able to cover the full range of investors."
BEST LENDER FOR FLEXIBLE MORTGAGES
WINNER - Woolwich
HIGHLY COMMENDED - First Direct
Flexible mortgages have come into their own as a result of the uncertainty in the economy. The ability this type of mortgage offers to defer payments or make underpayments has been vital to to hard-pressed homeowners as job losses and pay cuts have taken hold.
Meanwhile, with interest rates so low, the opportunity to overpay on a mortgage without facing early repayment charges has meant that many flexible mortgage holders have been able to make a considerable dent in their debt.
This year's winner, Woolwich, has come a long way as a lender over the past few years, with some exceptional products, a good underwriting team and great service, says Montlake. "The flexible offset mortgage has been a consistently good product," he adds.
First Direct was highly commended in this category. "First Direct has long been one of the trailblazers when it comes to flexibility," says Bien. "It also offers excellent current account facilities, making it a really attractive offering to borrowers."
BEST LENDER FOR FIRST-TIME BUYERS
WINNER - The Post Office
HIGHLY COMMENDED - Royal Bank of Scotland
Life is still tough for the first-time buyer. According to a report by Safe Home Income Plans (SHIP), the UK's trade body for equity release product providers, the average first-time buyer now has to pay 558% more for their first home compared with their parents' generation.
But some lenders have been fighting for the corner of would-be buyers by launching competitive and, more importantly, obtainable deals. This year's winner is the Post Office.
"Although it's not a brand immediately associated with mortgages, the Post Office has consistently supported the high loan-to-value end of the market with very competitive rates," says Hollingworth.
Royal Bank of Scotland was highly commended.
BEST LENDER FOR LIFETIME TRACKER MORTGAGES
WINNER - HSBC
HIGHLY COMMENDED - ING Direct, First Direct
The last few years have seen some of the most competitive tracker rates in history. With base rate currently at 0.5%, the average two-year tracker rate in the first quarter of this year fell to 3.4%, according to Moneyfacts.
Although tracker mortgages offer little security, the low base-rate environment has made this type of mortgage increasingly attractive to borrowers.
This year's winner, HSBC, has had market-leading rates in lifetime mortgages for some time now, and shows no sign of flagging. "HSBC's maximum loan-to-value is low but its rate and fees, plus the lack of early repayment charges, mean it's hard to beat," says Bien.
ING was highly commended for "consistently offering competitive lifetime trackers", while First Direct shared the place of runner-up. "Adding some lower rates on a repayment basis only went to enhance its already attractive range of lifetime trackers," says Hollingworth.
BEST LENDER FOR REMORTGAGES
WINNER - ING Direct
HIGHLY COMMENDED - Coventry Building Society
Some experts have predicted a steep rise in rates over the next few months. The Policy Exchange warned interest rates could rise to a massive 8% by 2012 if inflation spirals out of control. Remortgaging, then, is looking like an increasingly good option for many borrowers.
This year's winner, ING Direct, is noted for its flexibility on fees. "Coupling competitive rates with attractive fee options is what ING Direct is all about and it delivers across fixed and variable-rate ranges," says Hollingworth.
The runner-up was Yorkshire Building Society.
INNOVATOR OF THE YEAR
WINNER - Coventry Building Society
HIGHLY COMMENDED - The Mortgage Works
The mortgage market relies on innovation. From offset deals to flexible remortgages, innovation has driven the sector into the 21st century, and this year's winner, Coventry Building Society, has been a leader in innovation.
"This is one of the very few lenders to offer capped rates, coupled with a wide range of early repayment charge-free and flexible deals," says Boulger. Montlake calls it an "all-round excellent lender that's always open to improving its criteria".
This year's runner-up was The Mortgage Works. "This provider has managed to apply a fresh approach when looking at its mortgage range," says Hollingworth.
* Ray Boulger, senior technical director at mortgage broker John Charcol
* David Hollingworth, mortgage specialist at broker London & Country
* Melanie Bien, director at mortgage broker Private Finance
* Andrew Montlake, director at mortgage broker Coreco
Using data from London & Country's best buy tables for the last 12 months, we drew up shortlists for each category, based on the providers that consistently offered the most competitive rates.
These shortlists were passed on to the panel of judges who were asked to select their winners and runners-up in each category, based not only on the rate but also on fees, penalties, lending flexibility, service standards and the treatment of existing and new customers, the relationship between bank base rate and providers' standard variable rate, and finally the value of any freebies, such as legal fees.
Loan to value
The LTV shows how much of a property is being financed and is also a way to tell how much equity you have in a property. The higher the LTV ratio the greater the risk for the lender, so borrowers with small deposits or not much equity in the property will be charged higher interest rates than borrowers with large deposits. The LTV ratio is calculated by dividing the loan value by the property value and then multiplying by 100. For example, a £140,000 loan on a £200,000 property is a LTV of 70%.
A way of combining a mortgage and savings so the savings “offset” and reduce the mortgage. Rather than earning interest on savings, the savings reduce the mortgage and the interest paid on the borrowing, so savings are effectively earning interest at a higher rate than most mainstream savings accounts will pay. They are also tax-efficient, as savers avoid paying tax on interest that their deposits would otherwise have earned. Offset mortgages offer the disciplined borrower a great deal of flexibility, as overpayments can be made to reduce the term or monthly mortgage repayments, which can save thousands of pounds in interest payments over the mortgage term.
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.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
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.
A term to describe financial products or ‘plans’ that help older homeowners turn some of the value (equity) of their homes into cash – a lump sum, regular extra income, or sometimes both – and still live in the home. There are two main types of equity release: lifetime mortgages and home reversion plans (see separate entries for both). Whichever type you choose, you borrow money against the value of your property, on which interest is charged, and the loan is repaid when the house is sold after your death.
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.
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.
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.
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.
This refers to the terms of your mortgage and not the interest rate you pay. Flexible mortgages offer the borrower the ability to adjust monthly payments to suit their ability to pay. Although there’s no precise definition of a flexible mortgage, it should offer: interest calculated on a daily basis; the facility to make overpayments at any time without incurring penalties; the facility to underpay; and the ability to take a payment holiday (but these may be only options if you’ve made prior overpayments). Flexible mortgages require you be disciplined in your finances and their main drawback is the flexibility comes at a price as lenders charge slightly higher rates for these types of mortgages.