Who are the top mortgage providers?
Despite the problems the mortgage market has experienced since the credit crunch hit, the desire by Brits to become homeowners has not faltered. An Englishman's home, it seems, is still his castle.The same goes in Wales, Scotland and Northern Ireland.
Would-be buyers across the UK are still saving for deposits and working hard to meet lending criteria, whether they're trying to take that all-important first step on to the property ladder or have their sights on a new home that will require a bigger mortgage. And all the lenders shortlisted in this year's Moneywise Mortgage Awards are committed to helping them.
Whether in the form of great rates or product innovation, these lenders should be praised for helping to keep the housing market moving. Here, we applaud and award the finest of this year's bunch.
BEST LENDER FOR FIXED RATES
WINNER: YORKSHIRE BUILDING SOCIETY
HIGHLY COMMENDED: HSBC
Interest rates have been at record lows since 2009 but, with constant speculation about when they will move higher, fixed rates remain a popular option for borrowers who want the security of knowing what they'll be paying each month. And the popularity of fixed rates has been helped along by this year's winner of the fixed- rate category,Yorkshire Building Society.
Yorkshire's fixed products were praised by judge Gareth Lowman, associate director of SPF Private Clients, for being consistently competitively priced across two, three and five-year terms.
"Fixes are available across 75 to 90% loan-to-value (LTV) bands, with several fee options available," says Lowman. "Yorkshire has one of the products of the year so far with its five- year fix at 2.59%."
Ray Boulger, senior technical director at mortgage broker John Charcol, adds that Yorkshire has consistently been the market leader, especially in five-year fixes, and always offers offset versions.
Meanwhile, David Hollingworth, mortgage specialist at London & Country, applauded Yorkshire Building Society for consistently pushing the rest of the market in providing low-rate fixed deals. "That has not just been in one sector but across fixed term and loan to value," he says.
HSBC was highly commended in this category. "It's a familiar name seen on the mortgage best-buy tables, offering strong fixes at the low deposit end of the market, coupled with low fees," explains Lowman.
BEST LENDER FOR DISCOUNT MORTGAGES
HIGHLY COMMENDED: FURNESS BUILDING SOCIETY
Discount mortgages, as the name suggests, offer borrowers the chance to pay a discounted rate for a set period of time before reverting to their lender's standard variable rate (SVR).The winner in this category, HSBC, was championed by Hollingworth for offering "some of the very lowest rates" in what has become a very competitive market.
Lowman agrees, stating HSBC "excels when it comes to discounts". "Its pricing is often untouchable at the top of best-buy guides," he says. "It also benefits from one of the lowest standard variable rates (SVRs) on the market."
Highly commended in this category was Furness Building Society. "Furness has a refreshing approach to underwriting and an ability to deal both direct and with intermediaries," says Andrew Montlake, director of Coreco. "Its service has been consistent and it has concentrated on discounted rate products, which are keenly priced, with fair fees and good service."
BEST LENDER FOR CURRENT ACCOUNT/OFFSET MORTGAGES
WINNER: FIRST DIRECT
HIGHLY COMMENDED: YORKSHIRE BUILDING SOCIETY
With average savings rates still lingering around the 2% mark, savers need make their money work harder. As a result, offset or current account mortgages have become popular.These allow borrowers to use the money in their current or savings account to offset their mortgage.They only pay interest on their mortgage, less the amount of savings they have, allowing them to pay it off faster.
First Direct was named pick of the crop in this category, with Lowman highlighting the fact its competitively priced products are always available with various fee options. It not only offers tracker products but fixed offsets, too.
"First Direct has had a great spread of products with offset features, whether the rate is fixed or a tracker," seconds Montlake.
Yorkshire received high commendation, too."It is the only lender to consistently offer offsets on its fixed rates, and at only a 0.2 percentage point premium to the non-offset rates," says Boulger.
BEST LENDER FOR BUY-TO-LET
WINNER: COVENTRY BUILDING SOCIETY
HIGHLY COMMENDED: SKIPTON BUILDING SOCIETY
The buy-to-let sector was badly hit in the credit crunch but over the past few years it has been making something of a comeback, thanks in no small part to the hard work and innovation of some lenders.The winner in this category was Coventry Building Society, for the third year running.
"Coventry offers good service, mixed with a range of exciting products – especially its no-penalty flex range, which is all too rare on the buy-to-let side of the market," says Montlake.
Lowman says Coventry's product offering has amazing breadth – fixes, trackers, caps as well as early repayment charge-free products. "Flat fees, a free valuation and a remortgage service all make Coventry an easy recommendation," he adds. Boulger praises the lender for consistently offering very competitive rates.
Meanwhile, Skipton Building Society was highly commended by the judges. "It offers a good mix of short and longer-term fixes, alongside trackers up to 75% LTV with a good balance between rate and flat fees," says Lowman. "Slick service completes a strong proposition."
Boulger says Skipton "has shown strong appetite with well-priced products, combined with attractive fee packages".
BEST LENDER FOR FLEXIBLE MORTGAGES
WINNER: FIRST DIRECT
HIGHLY COMMENDED: PRINCIPALITY BUILDING SOCIETY
Flexibility in lending is something more and more customers require. Whether it's the ability to make an overpayment on your mortgage or the chance to take a payment holiday, flexible products are fast becoming the popular choice with borrowers.
Our winner in this category was First Direct, thanks to "its range of products with flexible, no-penalty options," says Montlake.
"First Direct allows borrowers to make unlimited lump sum and unlimited regular overpayments without incurring a penalty charge," adds Lowman. "Any early repayment charges (ERC) will only be charged on full redemption within the initial rate period on fixes while there are no ERCs on any trackers."
Principality was highly commended. "Perhaps not the first name that springs to mind in a competitive market but it is one of the lenders that has continued to offer flexible features on more traditionally structured deals, including overpayment, underpayment, payment holidays and a drawdown facility," explains Hollingworth.
BEST LENDER FOR LIFETIME TRACKER MORTGAGES
HIGHLY COMMENDED: FIRST DIRECT
With interest rates still historically low, lifetime trackers have remained a very attractive option and, as such, the market has become quite competitive, meaning this category was a closely fought one. HSBC, however, came out on top.
"HSBC is able to price competitively not just at 60% but all the way up to 90%," says Lowman. "Throw into the equation that these products do not have any redemption charges, and it means it is a deserving winner in this category." Hollingworth agrees, adding: "When it comes to lifetime trackers, HSBC has rarely been far from the top of the tables."
First Direct, also owned by HSBC, was highly commended in the category. "Although not quite living up to its sister brand on rate, it has been consistently competitive with the addition of offset functionality for those who need it," says Hollingworth.
BEST LENDER FOR FIRST-TIME BUYERS
WINNER: NEWCASTLE BUILDING SOCIETY
HIGHLY COMMENDED: HANLEY ECONOMIC
First-time buyers will always be the lifeblood of the housing market.Without them, the market grinds to a halt. Thankfully, lenders in our shortlist recognise their importance. The winner in this category was Newcastle Building Society.
"Newcastle has been inventive and specialised in the high LTV market, which has helped first-time buyers get on to the housing ladder," says Montlake. "While for some other lenders this seems to be more of a PR exercise, Newcastle has actually been lending and trying to be innovative in its approach."
Hollingworth says Newcastle has gone beyond the deposit boundaries of most lenders and offered mortgages to those with only a 5% deposit, a profile commonly associated with first-time buyers.
Highly commended in the category by the judges was Hanley Economic. "Punching well above its weight, Hanley is able to offer a number of 95% products," says Lowman. "Low product fees and some products benefiting from assisted valuations ensure first-time buyers are not hit too hard when spare cash is at a premium."
BEST LENDER FOR REMORTGAGES
HIGHLY COMMENDED: NATWEST
Borrowers coming to the end of their current deals are keen to avoid a payment shock and find a remortgage deal that is just as good.The lenders in this category have been duly obliging them. Our winner is Nationwide.
"Nationwide has consistently supported the mortgage market, offering good products for its existing clients plus an easy remortgage service for new clients," says Montlake."Service has also been top-notch."
Lowman praises the lender for offering a broad range of fixes and trackers up to 85% LTV and the fact low-fee options mean all eventualities are covered.
"Unlike other lenders, it does not charge a premium for the freebies," he says. "So-called 'free legals' can often be the downfall of any remortgage service, but Nationwide's service is fast and efficient too (and I know from personal experience)."
Meanwhile, Boulger says Nationwide has been the most consistent in offering competitive rates on a range of products.
NatWest was highly commended, with Hollingworth calling it "a lender that has really kicked on to bring a compelling range of deals to the market".
BEST FOR PRODUCT INNOVATION
HIGHLY COMMENDED: WOOLWICH
Every market needs innovation, and in the mortgage market this is particularly important. Our winner in this category was Clydesdale.
Boulger highlighted its policy of offering interest-only for the first three years and then switching to repayment, with a maximum initial term of up to 35 years, subject to age.
"When many lenders were withdrawing completely from the interest-only market, Clydesdale was able to be innovative and create a low start," says Lowman. "There are clients who need this style of mortgage, not for affordability reasons but as a conscious lifestyle choice, and Clydesdale deserves the success it should bring."
Woolwich was highly commended, most notably for its Springboard mortgage. "Although not inventing the concept, the Springboard mortgage moved the idea forward," says Hollingworth. "It allows for a mortgage of up to 95% LTV as long as a parent is prepared to lock away 10% of the purchase price (not 20% like the Lloyds Lend a Hand deal).
It also allows a property to be bought in a single name with joint borrowers on the mortgage, which can be useful where a parent helps their offspring buy a home and avoids worries over a later capital gains tax liability."
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.
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%.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.
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.
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.