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Here’s a statistic to warm the heart of anyone who has decided to rent instead of buy: according to Sainsbury’s Bank, the cost of owning a house has gone up 12% in the last year. The cost of your mortgage is up 12%, the cost of your alterations and improvements up 10%, and the cost of maintaining and repairing your home up 7%. It’s an expensive business owning a house. And the bad news for homeowners is that it isn’t going to get much cheaper any time soon. With inflation rising and even the nation’s Polish plumbers starting to put their prices up (according to the chief executive of Pimlico Plumbers, in the press last week), you can hardly expect your maintenance costs to fall, nor your mortgage costs to stop rising. Much of the market is now anticipating a half-point rise in rates at the Monetary Policy Committee’s next meeting, and there is every chance that rates will end the year at 6%, a 15% rise from current levels.
So what can homeowners do to try to keep their costs down? The obvious answer is to fix their mortgage as soon as possible. Most lenders have started to pull their better deals (last week, there were several deals around under 5%, this week they’re gone), but you should still be able to get a two- to three-year fix at around, or just under, 5.5% and a ten-year fix (which, given how entrenched inflation seems, may be a good idea) at a little less.
However, when you are looking for one of these deals, do remember that banks are not charities. They love to be in the best-buy tables, but they hate to offer the value that the phrase ‘best buy’ suggests. The result is that most mortgages that have good-looking interest rates come with a catch, usually in the form of a huge arrangement fee, a lengthy lock-in period, or a high exit fee. If you get “beguiled by a juicy headline rate”, says Paul Farrow in The Sunday Telegraph, “you’ll pay the price for it later”.
Take the most recent two-year fix from Abbey. The headline rate is 5.34%; the catch is that after the two years, you have to pay the standard variable rate, or SVR (currently at 7.34%), for 18 months. And if that sounds bad, look at the offering from West Bromwich: you get a stunningly low rate of 2.49% for two years, but then get locked into the SVR until 2013. Worse still, you are obliged to take the mortgage lenders’ insurance – something that pretty much guarantees you will be ripped off. Just as outrageous a money-making method, however, is the huge fees many lenders are now charging. Northern Rock is offering low fixed rates over two years (from 4.09%), but then charging a fee of an absurd 3.5% of the mortgage value, making the effective interest rate over the two years more like 5.65%. I’ve said it before, but I think that under the circumstances it bears repeating: never trust a bank.