subject: Fixing without remortgaging - interest rate caps from enness private clients [print this page] Fixing without remortgaging - interest rate caps from enness private clients
We are finding more of our clients are moving towards these instruments as they offer a known risk within, what is currently, an uncertain environment.
Imagine knowing exactly what you will pay on your mortgage over the next 5, 7 or 10 years? You can by taking a fixed rate is what most would say, but imagine rather than the 7 year and 10 year rates that are currently available at over 5% you could fix for that long at 3% or lower, regardless of your income or equity position?
An interest rate cap works as a hedge to protect against future upward movements in interest rates. Clients can buy into a rate of their choosing (3%, 4%, 5%, etc.) for a set period of time (2yr, 5yr, 7yr, 10yr, etc.) that will pay you an income when base rate moves over and above the contract price for the remainder of the contract. So if you took a Cap of 500k at 3% for 10 years, you will effectively never pay more than 3% for that period of time.
The main beneficiaries of such an arrangement are be:
Individuals on generous SVR's; e.g. Intelligent Finance products (with the majority tracking at 0.95% over base). There are also some extremely low lifetime trackers around; C&G and Woolwich were the biggest exponents, as well as HSBC.
Individuals too highly geared to re-mortgage and with lenders such as Northern Rock or Abbey National on high SVR's. This product effectively acts as an insurance product for when rates start to move.
Landlords with large portfolio's that are currently unattractive to lenders, but are currently on beneficial SVR's and have concerns longer term over base rate
Similarly landlords that are too highly geared to re-mortgage with anyone
Developers that are finding funding coming up short on projects as the banks are concerning themselves with interest covenants of 7%
The major benefit for most, is that Caps can be taken out completely independently of your lender. Loan-to-value and income are also irrelevant, as the contract is executed purely on a personal basis; i.e. if you can pay the fee then the contract is valid.
Although rates should remain low for awhile, most commentators have said that when rates start to move they will do so quickly. For those that are near to or above 75% LTV, could find themselves paying high rates after the next year or two. With the outlook on house prices not being especially great for 2011 and lenders forecast to tighten lending criteria again, due to fears of increasing unemployment, re-mortgaging will get harder before it gets easier. Therefore this is the best option for a number of clients'.
Longer term deals look particularly attractive, please call us on 0207 940 4747 for the current pricing.
