Going direct to a lender
Gillian Richardson is a 32 year-old accountant from Wilmslow.
She and her husband Fraser decided to remortgage at the end of last year and took out a two-year fixed rate with Britannia.
"It was a very easy process because we were already with Britannia. And even though interest rates had gone up since we took out our first mortgage, we managed to get a better rate.
"When you factor in fees, remortgaging can be quite expensive. But by staying with Britannia, we got a fee-free deal, so it worked out cheaper to stay. We did visit the branch for advice and found that helpful."
The couple contemplated fixing for a longer period, such as five years, but decided against it in the end.
"Even though I'm an accountant, I don't know any better than any one else what is going to happen to interest rates. With a fixed-rate, at least I know we will have a predictable payment every month. But by fixing for only two years, we also have a degree of flexibility if our circumstances change."
Gillian's advice: Find out if your current lender is offering you a fee-free deal and check out the products on offer from high street lenders, as these are still often the best value. Go to a broker if you have any special needs or circumstances.
Using a broker
A 27 year-old solicitor, Jeremy Shaw, bought a house in east London two years ago with his girlfriend Kate. They originally took out a two-year fixed-rate with Nationwide. When the two years were up, their cheap fixed rate ran out and the mortgage reverted to the lender's higher standard variable rate. So they decided to remortgage.
"We were going to get a tracker, which tracks the Bank of England base rate, and stay with Nationwide," explains Jeremy. "But complications arose because we also wanted to increase our borrowing to consolidate some debts. I had taken out a personal loan to make some home improvements 12 months earlier. I suppose I could have remortgaged then instead, but at that time, I would have had to pay high early repayment charges."
Many lenders, including Nationwide, will allow you to increase your mortgage borrowing to around 95 per cent of the property value if you are doing it to pay for home improvements.
However, because Jeremy did not remortgage at the time he wanted to make the home improvements and instead took out a personal loan to pay for them, Nationwide classed the additional borrowing as 'debt consolidation' and, a year later, would only allow him to borrow up to 85 per cent of the property value as a 'further advance'.
"Nationwide weren't very helpful," says Jeremy. "The advisers seemed to know less than me about their products.
"So I decided to go to a mortgage broker recommended by a family friend, called Stephen Brown. He works for a firm called Moneyquest and I thought I would see if he could help us.
"He was excellent and took all the pain out of the process. He recommended three or four different plans and we picked the one we liked the best - a tracker with First Active."
Days after Jeremy had applied for the tracker, the Bank of England put the base rate up. "We were halfway through the application process so I rang up Stephen and told him we wanted to change to a fixed-rate, because we were worried rates were going to keep going up. Fixed-rates are fixed at a certain level, so increases in the base rate don't affect them.
"Stephen was very helpful and willing to start again from scratch and do all the extra work involved with a new application.
"What's more, he negotiated a deal with First Active so that I got the rate that was available the day I applied - even though it was for a completely different product."
In other words, Jeremy bagged a fixed rate deal that pre-dated the base rate rise, even though he decided to get it after the rise was announced. Since fixed rates went up following the bas rate rise, this saved him a significant sum of money.
Nationwide have since apologised to Jeremy. They say any other borrower who wants to make home improvements, but is tied into a fixed-rate with heavy early repayment penalties, would do well to consider taking out a separate loan on a different rate. That way, when the borrower is freed from the early repayment charges, he or she will be able to consolidate the debt into a new mortgage.
Jeremy's advice: Work out how high interest rates would have to go before you cannot afford your repayments and decide whether to go for a fix or a tracker based on that calculation.
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