Woolwich launches UK's first "track and cap" mortgage
Designed to provide British homeowners with some protection against the current economic uncertainty in the UK home mortgage loan sector following the recently announced increases in base rate by the Bank of England, the Woolwich has recently launched one of the most innovative UK home mortgage packages of recent times – the UK’s first ever "track and cap" mortgage.
The product is designed to provide UK homeowners with the security of both a cap on the home loan interest rate they have to pay – in the same way as a fixed rate mortgage loan would do - while also offering the homeowner with the opportunity to benefit from a variable rate on the Bank of England's then base rate if the Bank of England's base rate (plus the margin) is less than the advertised fixed rate cap.
Initially, Woolwich will charge its customers a 0.23 percent margin above the Bank of England's base rate, meaning that customers will be charged interest at a rate of 5.48 percent. The introductory fixed rate offer is 5.99 percent for the first two years. Consequently, homeowners will currently be charged 5.48 percent, but can also feel at ease, in these times of rising interest rate, knowing the maximum interest rate they'll be charged on their home mortgage loan over the next two years is going to be 5.99 percent.
One the back of the launch, head of mortgages at the Woolwich, Andy Gray commented that: "Fixed rates are still expensive in comparison to trackers, and with swap rates heading ever higher they don’t look as if they are going to get any cheaper in the short term. This is why we have launched this unique product, 'track and cap' if you like, with no lock-ins it gives consumers the best of both worlds – a market-leading rate with a guarantee, so if rates go up you are protected and if rates head south you win."
Swap rates are what fixed rate home mortgage loans are based on and on the back of three recent interest rates by the Bank of England, many of the UK's leading home mortgage loan lenders have now withdrawn their 'best offer' fixed rate promotions in favor of tracker rates.
The Woolwich 'cap and track' home mortgage also has no arrangement fee or early repayment charge and is a flexible mortgage in that it does allow for overpayments, underpayments and payment holidays. However, it is only available on mortgages of 80 percent of the property purchase price and there is a one-off fee of £595.
Nevertheless, Meleanie Bien, associate director at independent mortgage broker Savills Private Finance, is warning UK homeowners not to get too excited about this 'quite innovative' product. Issues that Ms Bien highlights borrowers need to be aware of are that the built in margin Woolwich are charging is relatively high - when compared with current tracker home mortgage rates on offer in the UK - and the cap that Woolwich have put on this new product is relatively high - when compared to the maximum rate that industry experts predict will be reached in the next two years.
As a result, customers may be left in a position where they are paying slightly more than the best value tracker mortgage offers, with little or no chance of the cap rate being reached in the foreseeable future. Worse, after two years the cap will disappear and the home mortgage loan will revert to tracker home loan.
16th February 2007
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