Rate Watch: the best rates for mortgages, credit cards, savings and loans

Mortgages

With savings rates at an all time low, it’s worth reminding investors with a mortgage that the best use to which they can put spare cash is an offset mortgage which effectively allows you to make mortgage repayments out of gross, untaxed, income.  And with interest rates low, those can afford it should take the opportunity to reduce their mortgage. 

The best way to do this is to shorten the term, rather than use cash to make one-off lump sum reductions.  The advantage of this is that you can keep your funds on instant access, offsetting the costs of your mortgage and paying off your mortgage faster by reducing the term.  But when the time looks right, and markets have stabilised, you can get at your cash to invest it.

Bearing all this in mind this week’s best buy looks like the two-year fix from First Direct at the very competitive rate of 2.99% which also has an offset facility.  Ideally, it might be better to go for a longer term fix as mortgage rates have almost certainly bottomed out – even if Bank Base Rate hasn’t!  But there is a big differential between the 2.99% for First Direct’s two year fix and five year fixes which tend to be around 4.5% to 5% or more. 

After the two year fix expires the mortgage rate reverts to First Direct’s standard variable rate which is a competitive 3.69% so it’s a very good deal – even if you don’t want to use the offset facility.  First Direct had the most competitive SVR rate in the UK in 2008 according to Defaqto.

The mortgage is available to new and existing customers for both house purchases and re-mortgages. There is a £599 booking fee and £299 arrangement fee with a maximum loan to value of 75%.  And the advantages of offset seem to be getting through to an increasing number of borrowers. 

A surprising 10% of First Direct’s customers now have an offset mortgage which also allows you to offset balances in current account or savings account against mortgage interest.  For those who still don’t understand how offset works, you deduct the amount deposited from the amount borrowed and pay interest only on the balance.  A few lenders allow you to offset 100% of the borrowing – and make no interest payments at all.

‘This product is a market leader and we think it will be very popular particularly as our customers are extremely savvy when it comes to knowing how to make the most of their money.,’ commented Jimmy Kelly, mortgage manager at First Direct.  ‘More and more are understanding the huge benefits of offsetting their mortgage.'    

If there is any drawback with this mortgage it is that the cutoff date is age 65.  With many people having to work well beyond normal retirement age, it is about time lenders reviewed these ageist rules.  So long as a person can show that they can meet the repayments there is no reason why there should be any maturity date at all.  In Switzerland you can take out a lifetime mortgage which is just that – you can keep the loan until you die.  This has the advantage of reducing the potential IHT problem which is most difficult to get rid of if the main asset is a home and the owner is a single person. 

Full details at www.firstdirect.com

Savings

With the end of the tax year fast approaching there aren’t many days left in which to invest in an Isa for 2008-2009.  The majority of Isas are Cash Isas and with savings rates at an all time low, it makes no sense to waste the opportunity to shelter even a small amount of savings from income tax.  But as usual, apathy rules.