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These low start deals could trap the unwary

How much would you be willing to pay for a mortgage that helps you plan your finances over the longer term?

Maybe a shaving or two on the interest rate to get a longer term fix if you are that way in-clined or perhaps an arrangement fee of a few hundred quid to secure that new deal you fancy?

OK, but not two grand. Well, £1,999 to be precise. That’s a family holiday, that’s an annual wardrobe update, that’s school fees for a term. That’s a hefty fee for a mortgage aimed at first-time buyers.

So I wonder how many brokers will be recommending Halifax’s new ‘low start’ stepped fixed rate mortgage with its £1,999 fee.

Mark Heaton, Halifax’s head of mortgages, says: “Low start helps borrowers plan their finances over a longer time period, whether they are buying for the first time or moving home.”

I’ve never been a fan of these types of products. They have the potential to suck in unsophisticated consumers with their lower than low initial rates – in this case 1.99% for the first year – and then leave them in a disastrous position in year two when the rate jumps.

Halifax insists that the range is designed to help home buyers adjust to the costs of buying over time. This would be easier to accept if the rate crept up slowly – perhaps by one or two percentage points a year rather than leaping from 1.99% – in the cheapest option – to 5.99% in year two.

I certainly cannot accuse Halifax of being underhand as monthly payments were detailed in the announcement.

An average first-time buyer now pays £151,565 for their first home. Borrowing 90% of the property value under the new Halifax deal would mean monthly payments of just £583.46 for the first year if the 1.99% option is taken up.

In the second and subsequent years of the five-year deal payments of £901.79 have to be made each month. That’s more than £300 extra per month to find, a tough call for any buyer.

Of course, borrowers can pick from initial rates of 1.99%, 2.99% or 3.99% and the fees fall as the rate rises. At 1.99% the fee is £1,999, at 2.99% it drops to £1,499 and at 3.99% it is almost acceptable at £499.

With so many first-time buyers desperate to get on the housing ladder and willing to take any help they can get, low start products will always entice the unwary. Good job brokers are there to point out the pitfalls.


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