Product Types

Standard Variable Rate

The Standard Variable Rate (SVR) is one where the lender sets its interest rate above the Bank Base Rate. This rate can rise or fall whenever there is a change in the Bank of England’s Base Rate. Lenders can be quick to react to rate increases yet slow to pass on decreases. There is no obligation to match changes to the base rate.

It is usual practice for a mortgage to be transferred to the SVR at the end of any discount or fixed rate period.

Fixed Rates

A fixed rate is what it says it is. The interest rate is fixed for a certain period. You will know the monthly payments over a set number of years. The downside is the loss of flexibility and increased early repayment charges if you repay the mortgage during the period.

LIBOR Rates

Some lenders calculate interest rates at a margin the London InterBank Offered Rate (otherwise known as LIBOR). This is very similar to the Standard Variable Rate; however the lender calculates the rate every 3 months. The amount you pay will be constant for 3 months. Because of the time lag against the Bank of England Base Rate, you could benefit by having a lower rate if interest rates start to increase, however the opposite could be true if they start to fall.

Discounted Rates

A discount mortgage offers a reduction off the lender’s standard variable or LIBOR rate. When the lender changes their rate, the interest rate will change, but it will remain at a set level below the SVR or LIBOR. A large discount will usually be for a short period followed by a further period at the SVR or LIBOR, during which time, you must stay with the lender or have to pay an early repayment charge to leave.

Capped Rates

By capping your interest rate you are effectively putting a ceiling on your interest rate but without fixing. The main advantage of a capped rate is that while the interest rate can fall it will not rise above a certain level for a fixed period of time. The maximum the capped rate can rise to is often slightly higher than fixed rates and discounted rates are often lower.

Bank Base Trackers

A tracker mortgage, literally tracks the Bank of England Base Rate. The lender guarantees to automatically match any increase or decrease that the Bank makes. The rate is set at a percentage above the Base Rate, however it is possible to combine these with discounted rates below the Base Rate (these can tie you in to a higher rate after the discount period ends). You benefit when rates fall, however when rates are increasing, a capped or fixed rate could be preferable.

Flexible Buy to Let Mortgages

With a flexible mortgage, many lenders will allow you to make overpayments. This can be used to plan the early repayment of a mortgage. You can usually ‘re-draw’ the overpayments when you want to which is particularly helpful when it comes to redecorating your property of for repairs.

Minimal Status

Just because you can’t prove a high level of income doesn’t mean you are a bad credit risk! Many of our lenders recognise this, for example; you may have been made redundant and have sufficient capital to live off. Alternatively your partner/spouse may have a substantial income and the finance/property may be far more efficiently placed in your name for tax reasons. Another reason maybe that you are simply unable to prove (by normal means) your true income position.

Overseas Mortgages

British mortgage lenders are often reluctant to provide mortgages to people who do not live or work in the UK. This is because their mortgage approval systems are designed towards information received from the UK Credit Reference Agencies and the lenders reliance on applicants having a provable UK source of income.

Mike Stepney is a key player at in the online department at The Money Centre. For more advice on property development and buy to let mortgages visit www.themoneycentre.net

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