The AA revs up its service launching mortgages for members
The AA has today begun offering mortgages to its members with a range of deals enabling buyers to lock in rates for periods of between two and five years.
The deals offered by The AA all have a relatively low £195 lending fee, and buyers may qualify for up to £250 cashback, or having some of their legal fees paid by The AA.
However, the catch is that deals are only available to subscribers of the AA’s breakdown service, which costs £39 a year.
The rates available are as follows:
- 40% deposit (60% loan-to-value (LTV)) - two-year fix at 2.08%, three-year fix at 2.28%, four-year fix at 2.48%, or five-year fix at 2.67%.
- 25% deposit (75% LTV) - 2.28% for two years, 2.48% for three years, 2.78% for four years, or 2.88% for five years.
- 10% deposit (90% LTV) - 2.97% over two years, 3.33% over three years, 3.53% over four years, and 3.78% over five years.
The AA’s standard variable rate (SVR) once the fix ends is 4.24% on all deals, which could rise or fall at any time.
Technically, the AA is acting as a mortgage introducer, and the loans are actually provided by the Bank of Ireland, which is fully licenced and authorised by regulator, the Financial Conduct Authority (FCA).
The mortgage deals are only available directly on 0800 169 6010. You can’t get them through independent mortgage brokers.
Michael Johnson, director of mortgages at the AA says: “This mortgage range has been developed to respond to the needs of our members. Lots of people are currently on mortgage deals where they are spending far more than they need to. This could be down to a combination of high fees and a lack of information, stopping them from switching to a better deal.
“We want to help our members by removing hidden costs and providing simple, straightforward mortgages, with all standard upfront fees included.”
While these deals would be an improvement for anyone who’s currently on their existing mortgage company’s standard variable rate, that’s not to say they’re the best possible deal.
If you speak to an independent mortgage broker, rather than one that’s tied to a particular lender, they’ll be able to find you the most suitable mortgage from a far bigger range of options.
According to a spokesman for broker John Charcol, even if a mortgage is only available directly to buyers (and not through a broker), the broker will still be able to assess the deal for you and advise if something else is more suitable.
For example, a buyer with a 40% deposit could get a 1.69% fixed rate for two years with Yorkshire Building Society with no fee, which is far cheaper than the AA’s 2.08%, plus its £195 fee.
At the other end of the spectrum, a buyer with a 10% deposit could get a two-year fix at 2.49% with no fee from HSBC, compared to 2.97%, plus a £195 fee, from The AA.
- Use our mortgage comparison tool, which is provided in partnership with independent broker London & Country Mortgages.
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.
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.