Societies offer cheap niche deals

Building societies are leading the mortgage market with innovative products, mortgage brokers say, while state-supported banks have less competitive rates than the rest of the market.

Mortgage deals from bailed-out banks account for just eight out of 50 best-buy products currently on offer, according to figures from realpricecomparison.com. Research from Moneyfacts showed that over the past 12 months, Cheltenham & Gloucester (C&G), Halifax and Northern Rock have consistently charged higher rates on their two-year fixed-rate mortgage deals than the rest of the market.

“Many hoped that the state-owned banks would be at the front of the queue for unlocking the mortgage market, but this isn’t the case,” said Michelle Slade of Moneyfacts.

For a two-year fixed rate mortgage at 75 per cent loan-to-value, the average rate across the whole of market was 4.19 per cent at the beginning of March, compared with 4.57 per cent from C&G, 4.37 per cent from Northern Rock and 4.27 per cent from Halifax.

Part-nationalised Royal Bank of Scotland (RBS) has been more competitive. It had a two-year fix at 3.84 per cent, compared with HSBC’s 3.99 per cent and Woolwich 4.06 per cent.

But while the “plain vanilla” market – prime and low loan-to-value mortgages – is dominated by banks that didn’t need state help, such as HSBC, Santander and Barclays, realpricecomparison.com says building societies now provide 50 per cent of products at 80 per cent loan-to-value or more. Building societies are unable to compete on price with the big banks for “plain vanilla” mortgage deals due to limited funding. Instead, they are focusing on niche mortgages to attract business.

ITL Mortgages, a subsidiary of Stroud & Swindon Building Society, has a lifetime tracker at 3.89 per cent – bank base rate plus 3.39 per cent – which is available up to 85 per cent loan-to-value. The rate tracking is also capped at 5.99 per cent – which means it cannot exceed this level – until April 30 2013.

“The capped rate gives you some comfort but you’re not paying a premium on the tracker rate – at up to 85 per cent loan-to-value it’s a very competitive rate,” said Ray Boulger of John Charcol, the mortgage broker.

The Mortgage Works, the specialist arm of Nationwide Building Society, this week launched a range of guarantor products that brokers also praised as innovative.

The range includes a “limited liability product”. Under this deal, the
borrower must be able to afford – on normal lending criteria – at least 70 per cent of the loan amount. The guarantor of the loan – usually a parent – is only financially liable for the other 30 per cent of the debt, rather than the whole loan, plus a further 10 per cent.

“The idea of limiting the guarantor’s liability is unique and a brilliant idea,” said Jonathan Cornell of First Action Finance.

TMW’s launch follows the withdrawal by Halifax last week of its guarantor deals, due to what parent company Lloyds Banking Group said was a lack of demand.

“It’s good to see a lender looking to add something new for first-time buyers, although the rates won’t be the sharpest and some come with fees of as much as
2 per cent,” said David Hollingworth of London
& Country.

Coventry Building Society has a four-year fixed-rate first-time buyer deal at 5.99 per cent, available up to 90 per cent loan-to-value for borrowers who are existing customers, or whose relatives have a mortgage or savings account with Coventry. It comes with a £199 fee.

John Charcol is also marketing an exclusive three-year fixed-rate buy-to-let mortgage with a building society at 6.49 per cent. The deal is available at up to 80 per cent loan-to-value – an area of the buy-to-let market with few products on offer – with a £995 fee. Rental cover required is 125 per cent.