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June 3, 2011 11:27 am

Yorkshire BS offers switch-to-fix deals

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Yorkshire Building Society is the latest lender to launch a “switch-to-fix” mortgage range to appeal to those borrowers who want to take advantage of the current low interest rates but are concerned about rates rising in the future.

Switch-to-fix mortgage deals, also known as droplock mortgages, allow homeowners to take out a tracker rate but then move onto a fixed-rate deal - with the same lender - without incurring any early repayment charges.

A growing number of banks and building societies are now offering these type of products, with Northern Rock launching its own version called ‘Freedom to fix’ - last month.

Other lenders that already offer these type of products are Nationwide Building Society, Royal Bank of Scotland, Barclays and Santander.

On Friday, Yorkshire Building Society announced it would be offering customers a choice of two switch-to-fix deals.

It is offering a three-year tracker at 2.29 per cent - 1.79 per cent plus bank base rate - available up to 75 per cent loan-to-value, with a £995 fee. Or for those who want a smaller fee, the lender has a three-year tracker at 2.49 per cent - 1.99 per cent plus bank base rate - with a £95 fee and £500 cashback.

“If a customer is undecided between a tracker rate and a fixed rate mortgage - this new droplock option gives them much more freedom when choosing a mortgage,” said Chris Smith of Yorkshire Building Society.

While some lenders charge a premium on the tracker rate for the flexibility, Yorkshire Building Society’s deal is extremely competitive, according to mortgage brokers.

Unlike other switch-to-fix deals offered by rival lenders, Yorkshire Building Society said it will not charge borrowers a product fee when they transfer to one of the lender’s fixed-rate deals.

In comparison, customers that opt for one of Northern Rock’s freedom to fix trackers will still have to pay the product fee of the new fixed-rate deal but there will be no application or valuation fee charged.

“Yorkshire Building Society makes note of the fact that there will not be any fee charged,” said David Hollingworth, at London & Country Mortgages. “However they (the news loans) will be from a separate range, distinct from the rates on offer to new customers, which whilst charging a fee will often come with a lower interest rate.”

He said this highlights the fact that in any guise there is no certainty over what the fixed rate offering will be with switch-to-fix. “However, it is a useful option to have especially when there is little or no compromise on the tracker rate itself.”

Although switch-to-fix deals have increased in popularity, borrowers should be aware that a potential downside of these deals is that the lender’s fixed rates are likely to have risen by the time the borrower decides to switch to a fixed deal.

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