Skipton Building Society has made what some brokers call an “unprecedented move” by offering rates for existing borrowers switching products starting at 3.35 per cent fixed for two years at 60 per cent loan-to-value, with a five per cent product fee.
The higher fee is to help bring down the monthly payment and help those who may face financial difficulty when remortgaging, deferring some of the cost.
The Skipton says: “The new two year fixed range is only available for rate switches and features 60-90 per cent LTV products with a five per cent completion fee, which can be paid up front or added to the loan. In return, customers will benefit from lower interest rates than our standard on-sale range offers.”
Brokers were mixed in their response to the product.
Justin Moy, managing director at EHF Mortgages, comments: “This is an unprecedented move for residential mortgages, assisting those Skipton borrowers who need help with the monthly payments, and deferring costs through a larger fee added to the mortgage. This is a similar strategy to buy-to-let lenders who have been using higher fees to bring mortgage rates lower, and make mortgages more affordable as a result.
“This concept from Skipton for residential mortgages will interest other lenders, and will have borrowers seriously considering it, too. As ever, people should take professional advice and need to understand the effect of the fee on the mortgage.”
Stephen Perkins, managing director at Yellow Brick Mortgages, agreed the move is innovative but urged borrowers to weight up the numbers: “Borrowers need to weigh up the overall cost of the product against their personal priorities.”
Scott Taylor-Barr, financial adviser at Barnsdale Financial Management, says: “The five per cent fee is steep, there's no getting around that, but it is allowing Skipton to deliver a mortgage at around 3.5 per cent so less than the market norm currently of circa 5.5 per cent.
“For a customer coming off a deal at one or two per cent the monthly payment is going to be their key concern, so paying a larger fee by way of adding it to the mortgage debt could be the right way forward and stop them struggling and potentially falling into arrears. It is in no way an ideal solution, but if it allows people to maintain their mortgage repayments, not fall into arrears and not have the stress and worry, then at least it is a solution.“
Gary Bush, financial adviser at MortgageShop, is praising: “This kind of out-of-the-box thinking is needed by other lenders to help maintain the UK's mortgage market."