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Picking a way through the mortgage minefield Anthony Swanston

MORTGAGES have always been a minefield, but never more so than now.

With constant downward pressure on interest rates lending competition really is hotting up. It is interesting that in Great Britain one of the most aggressive mortgage lenders is Bank of Ireland.

It is confusing that the deals on offer in Great Britain are not always available here. So let us look at the mortgage opportunities which exist and the points to watch out for.

1: By locking into a fixed rate now you may not be absolutely at the bottom of the market, but you cannot be far from it.

Better to get in too soon than miss out completely - there is always the possibility that between application and completion the rate will reduce again.

2: For those running business overdrafts or commercial mortgages which have, typically, higher interest rates, look again at the possibility of shifting all or some of this debt into your domestic mortgage where the rate could be considerably less.

3: With Business Expansion Schemes which offer assured exits and projected returns in the region of 14pc, it seems almost crazy not to take a five year fixed loan at under eight per cent to finance the investment.

4: The many Northern Ireland people who have foreign loans on foreign properties - Algarve, Dordogne, Donegal, et al - consider now bringing these loans back into the UK secured against your main UK property - if your income is sterling based your debts should also be sterling based.

Here are some important points to consider when rescheduling debt:

1: Be fully aware of the costs of changing your mortgage. There will almost always be a survey fee and some legal fees.

Obtain a realistic estimate in advance so that you will know what you are in for and therefore be able to calculate the relative merits of changing.

2: Many loans, particularly fixed rate loans, carry an arrangement fee. Typically, this arrangement fee is not refundable - so if you change your mind about the whole affair or decide upon a different lender you will almost always lose the fee.

3: With repossessions and negative equity (more a feature in Great Britain than in Northern Ireland), lenders are taking a much more conservative view on valuations - the forced sale value of your property may be considerably less than the value you might have hoped for.

4: Once your borrowings exceed 75pc if the value of the property, you will probably have to bear the additional cost of a mortgage guarantee policy.

Premiums

Premiums vary enormously from lender to lender - adding this to the arrangement fee, survey fee and the legal costs can all mount up to a tidy sum.

5: Many loans are conditional upon other services or products being bought from the lending institution - watch out for conditional current accounts, property insurance, contents insurance and endowment policies.

A good independent financial advisor should be able to present you with an accurate cost benefit analysis of changing your mortgage.

If in changing the mortgage you are not transacting additional financial services business, such as new endowments or pensions, then you must expect the costs to be increased still further by your adviser's fee.

It seems clear that there might be another interest rate cut in the short term (Germans permitting)- it could be a last opportunity to lock in at these levels.
