The Moneywise Mortgage Awards 2012
After the drama of recent years, the last 12 months have been relatively quiet for the UK mortgage market.
While there have been some signs of recovery, stability has been the name of the game with most mortgage market players concentrating on maintaining their standing in the sector.
The figures back this up - according to the Council of Mortgage Lenders, in 2011 lenders handed out £140 billion, up by 3% from £136 billion in 2010. It's a small change but it's certainly a step in the right direction.
This positive progress is down to the mortgage lenders that have stood up to the challenge and gone out of their way to continue to help borrowers. The Moneywise Mortgage Awards acknowledge the efforts of these lenders as well as pointing you, the customer, in the right direction to find the best lender for your needs.
BEST LENDER FOR FIXED RATES
WINNER - Chelsea Building Society
HIGHLY COMMENDED - ING Direct
Before the credit crunch hit, when interest rates were around 5%, it seemed a wise choice to fix your mortgage. Prices were rising, the market was booming and there was a chance rates would creep higher.
Those sensible fixed-rate borrowers were left reeling, however, when interest rates fell to 0.5% following the market turbulence. But with rate rises now coming through, fixed rates are beginning to appeal again.
One lender offering very attractive rates is our winner, Chelsea Building Society. "Chelsea had arguably the stand-out rate for many a year with its five-year fixed mortgage," says Andrew Montlake, director of mortgage broker Coreco. Mark Harris, chief executive of Savills Private Finance, also praises Chelsea for offering "consistency coupled with good service".
Highly commended in this category is ING Direct. Fahim Antoniades, group director of Mortgage Centre IFA, praises the lender for having an "affordability model that is much better than the rest", while David Hollingworth, mortgage specialist at London and Country, notes it has been "fiercely competitive on rates for much of the year, offering some of the cheapest fixed rates on the market".
BEST LENDER FOR DISCOUNT MORTGAGES
WINNER - HSBC
HIGHLY COMMENDED - Market Harborough
Discount mortgages have grown in popularity over the past few years. These loans enable the homeowner to pay a rate below the lender's standard variable rate (SVR).
This discount applies for a set period before the rate reverts to the SVR. At a time when money is tight, the ability to pay a reduced amount for a while is undoubtedly appealing, and our winner for discounted rates, HSBC, has certainly been adding to that appeal.
"HSBC has been a consistent performer in the discount market. It has positioned itself at the top of the best-buy lists, where it has generally proved to be unbeatable," says Montlake. Harris also cites its "excellent products and pricing" as a reason why it is a deserving winner.
Highly commended in this category is Market Harborough, which is comfortably holding its own among the bigger players. "Market Harborough is a lender proving the importance of the smaller building societies in this market, and showing that they can provide a compelling alternative to the big lenders," says Hollingworth.
"It has offered an excellent range of discounts, often for the term of the mortgage and with offset functionality."
BEST LENDER FOR OFFSET MORTGAGES
WINNER - First Direct
HIGHLY COMMENDED - Yorkshire Building Society
In the current low interest rate environment, finding a savings account that can offer a decent return on your money can be difficult. In order to beat inflation (measured at 3% using the consumer prices index), a basic-rate taxpayer would need a savings account paying 3.75%, while a higher-rate taxpayer needs an account at 4.99%.
But current 'best buys' only sit around the 4.5% mark for a taxable five-year bond. So using offset mortgages – where you place your savings in an account linked to your mortgage to reduce the interest payable on it, thereby cutting the total amount you repay the lender – is a good way to beat inflation.
Our winner in this category, First Direct, is the market leader when it comes to offset. "In an environment where borrowers are keen to reduce their debt and make their savings work harder for them, offset mortgages have a big role to play," says Hollingworth.
"First Direct has been committed to offset lending for a long time and continues to offer a strong range." Montlake calls First Direct "the market leader bar none, in terms of low rates coupled with an offset product and a bank account that users love".
Yorkshire Building Society is highly commended "due to its wide range of offset products".
BEST LENDER FOR BUY-TO-LET
WINNER - Coventry Building Society
HIGHLY COMMENDED - The Mortgage Works
After being hit hard by the credit crunch, the buy-to-let market is making a comeback, with some big players offering attractive deals. The winner in this category was Coventry Building Society and its Godiva subsidiary. Harris says: "Godiva has provided much-needed competition and its approach, pricing and product design are fresh."
Hollingworth adds: "Coventry is a top-class lender and has been extremely strong in the buy-to-let market. Very competitive rates, with flat fees and help with valuation and remortgage costs, make it a worthy winner."
Highly commended is Nationwide's subsidiary The Mortgage Works. Antoniades praises its "speed of service, underwriting and general understanding of the buy-to-let market and product range", while Montlake calls the lender "a perennial supporter of the buy-to-let market offering a good range of products with something for everyone".
BEST LENDER FOR FLEXIBLE MORTGAGES
WINNER - Woolwich
HIGHLY COMMENDED - First Direct
Flexibility in lending has become vital over the past few years. Changes in circumstances and a fragile economy have meant products that offer the option of flexibility, whether it be the ability to make overpayments or to take a payment holiday if need be, have been desperately needed.
Our winner has been on hand to meet such needs. Woolwich is, according to Harris, "way out in front" of other lenders. Hollingworth, meanwhile, says: "Woolwich has been one of the biggest proponents of flexible mortgages and continues to incorporate flexibility in a wide range of products."
Highly commended in this category is First Direct. "It is a consistently good performer, with unfeasibly good rates attached to flexible products," says Montlake.
BEST LENDER FOR LIFETIME TRACKER MORTGAGES
WINNER - HSBC
HIGHLY COMMENDED - ING Direct
The low interest rate environment has meant tracker rates have been extremely attractive for some time. While interest rates may well rise again in the not-too-distant future, some experts are claiming it will be early 2014 before we see any significant increase. So, although trackers aren't exactly the most secure of options, they're certainly one of the most cost-efficient at present.
With such low interest rates across the board, it could be difficult for a lender to stand out, but not our winner HSBC.
"HSBC has been aggressive in its pricing on a consistent basis, and that is shown perfectly in its range of lifetime trackers," says Hollingworth. "Low rates across the LTV range and the added attraction of no tie-ins at any time make it a market leader." Harris also praises the lender for its "sharply priced products to attract borrowers looking for less than 60% loan to value".
ING Direct was highly commended in this category. "ING deserves recognition as a relative newcomer to the market," says Montlake. "For a while it had some of the best lifetime tracker products, with no penalties, decent fees and an excellent underwriting process, backed up by a slick online facility and nononsense, quick application process."
BEST LENDER FOR FIRST-TIME BUYERS
WINNER - HSBC
HIGHLY COMMENDED - Newcastle Building Society
They're known as the lifeblood of the mortgage market, yet in the past few years first-time buyers have been left out in the cold. With lenders requiring hefty deposits and lending criteria tight, many first-time buyers have found it almost impossible to get on to that first rung of the property ladder.
Thankfully, there are some lenders out there that are still prepared to hand out cash to property newbies and our winner, HSBC, is one of them. "HSBC has delivered for many fi rst-time buyers, with good rates available up to 90% LTV," says Montlake.
"Although its process can be somewhat frustrating, it has nonetheless been outspoken in its determination to help this important sector of the market."
Highly commended is Newcastle Building Society. "Newcastle has offered a strong range of deals for first-time buyers struggling to meet the demands for large deposits," says Hollingworth. "It has also ensured a low-fee option to cut upfront costs."
BEST LENDER FOR REMORTGAGES
WINNER - ING Direct
HIGHLY COMMENDED - HSBC
For those borrowers coming off deals that they took out before the credit crisis hit, there can be a worry that they won't be able to find a similar deal now. So lenders that offer a good range of remortgage products are very much in demand. Our winner, ING Direct, is one such lender.
"A good suite of products on fixed, tracker, discount and without-penalties deals give ING the edge," says Montlake. "A further plus is the fact it deals in both the direct and the broker markets." Hollingworth agrees. "Offering low interest rates is one thing, but backing the headline rate with low-fee options and incentives of free valuation and free legal work makes for a transparent, good value remortgage range," he says.
Highly commended is HSBC. "Super pricing on many of its remortgage rates, at times combining market-leading rates without any fees at all means that HSBC has made a real mark in this market," adds Hollingworth.
MOST INNOVATIVE LENDER
WINNER - Accord Mortgages
HIGHLY COMMENDED - Aldermore
Innovation is the key to progression and, even through the tough times, there have been lenders in the mortgage industry that have worked hard to provide innovative products to borrowers – none more so than this year's winner, Accord Mortgages.
"Accord launched 'tracker to fixed' mortgage rates after realising that borrowers have been grappling with the dilemma of whether to forego low initial tracker rates in favour of the security of a fix," says Hollingworth.
These five-year mortgage deals enable borrowers to stay on a rate tracking the Bank of England base rate for two years, and then move onto a fixed rate for years three to five. That rate is fixed at the start of the mortgage.
Highly commended is Aldermore, which Montlake praises for "offering very good options for first-time buyers, the self-employed and those looking at buy-to-let".
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%.
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.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
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).
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.
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.