Yahoo Finance 'Beware fixed mortgages with high exit fees', brokers warn
Those seeking to rush into long-term mortgage deals while interest rates stay low should ignore early repayment charges at their peril, mortgage brokers warn.
The Bank of England Bank Rate was increased by 0.25pc (to 0.5pc) earlier this month, after much anticipation. By that point mortgage rates were already beginning to creep up. This has led many homeowners to look to remortgage on fixed-rate deals of five or even 10 years.
However, Ray Boulger of John Charcol, the brokers, said being too quick to lock into a deal without considering your exit strategy could be a mistake. A select few lenders offer longer term mortgages with no early exit fees, and Mr Boulger said these were worth considering.
“It’s part of the market that is often overlooked,” he explained. “Most people are so rate focused they don’t tend to think about an early repayment charge. The security of knowing what rate you will pay is worth it, but it’s important to know you can get out of the mortgage if you need to.”
He said while deals with less onerous penalties tend to be more expensive, and few lenders offer them, they are certainly worth considering.
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Comparing deals with and without repayment penalties
In terms of five year deals, the best rates available are 1.85pc with Coventry Building Society and HSBC's 1.99pc. They both come with exit penalties however of 5pc in the first year, scaling down to 1pc in the later years.
By comparison Coventry Building Society currently offers both a fixed rate of 2.09pc and a variable rate, starting at 1.64pc, with no early repayment charge. Both are for buyers with a minimum 50pc equity. The fixed rate deal has a £499 fee, while the latter is £999.
Hanley Economic Building Society has a five year mortgage with a variable rate starting at 1.75pc. Total fees are £900 and there is no early repayment charge.
TSB also has an unusual 10-year offer which has early repayment charges in the first five years only. The rate is fixed at 2.64pc and the mortgage is available to those with a minimum 40pc equity.
Mr Boulger said with other 10-year mortgages the early repayment fees differ wildly - from Coventry BS’ 1pc for the last five years to Santander’s 6pc for the entire term. He said Santander’s cheapest rate of 2.69pc meant redeeming in the last 27 months of the mortgage would cost more than the remaining interest.
The situation in Britain differs massively from that around the globe, he added. In the US, for example, it is common for 30-year fixed mortgages to have no early repayment charges. In Britain, Coventry is the only mainstream lender offering free early repayment on fixes longer than three years.
Another type of deal homeowners can consider is an offset mortgage. MR Boulger said his pick was Coventry’s 10-year offset mortgage which comes with a rate of 2.85pc with a minimum equity requirement of 35pc.
Offset mortgages allow you to make early repayments at any time, but the money is put into a linked savings account and can be withdrawn again if needed. Mr Boulger said this might suit self-employed people who get paid a large amount four times a year as it would allow them to make large payments at that time, with the security of knowing they can draw on the cash in a crisis.
