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Why a lower interest rate does not always mean the best mortgage

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Homeowners and buyers’ obsession with the lowest possible mortgage interest rates is leaving them susceptible to thousands of pounds in unexpected costs.

Most borrowers are focusing on enticing rates and overlooking fees and early repayment charges when selecting a mortgage, according to the latest research from Legal & General Mortgage Club.

Nearly two thirds of UK borrowers consider the interest rate to be the most important factor in choosing their next home loan, according to L&G.

Only 13 per cent of borrowers see early repayment charges as being important to consider when getting their next mortgage, according to research from L&G

Only 13 per cent of borrowers see early repayment charges as being important to consider when getting their next mortgage, according to research from L&G

But only 13 per cent of borrowers see early repayment charges as important, meaning they could face thousands of pounds in extra costs if they wish to move to a new product before their existing fixed deal ends.

A borrower locked into a five-year fixed rate deal on a £250,000 mortgage, who then decided to move or remortgage before the five years is up, could face £10,891 in early repayment charges according to L&G analysis.

‘Our latest research shows why it is important to look beyond the headline rate and consider other factors, like exit charges,’ says Kevin Roberts, director at L&G Mortgage Club.

‘Not doing so could mean having to pay thousands in unexpected costs when the time comes to move home or remortgage.’

Remortgaging prior to the initial fixed rate deal ending will usually result in an early repayment charge, which often ranges between one to five per cent of the outstanding mortgage amount.

Early repayment charges can be a serious issue for those looking to move home before their fixed rate deal comes to an end.

‘With Covid-19 changing the way we want to live and the stamp duty holiday offering a financial incentive, we’ve seen a huge increase in housing transactions over the last year,’ says Daniel Hegarty, chief executive of online mortgage company, Habito.

Early repayment charges often range between one to five per cent of the outstanding mortgage amount, and can be a serious issue for those wanting to move

Early repayment charges often range between one to five per cent of the outstanding mortgage amount, and can be a serious issue for those wanting to move

‘Unless timed perfectly with the end of their current mortgage’s fixed-rate deal, many of these buyers will have faced charges from their lenders to be released from their current mortgage early.

‘For some buyers, this will be a price worth paying to get their new dream home, but for others, it will have come as a nasty shock, or worse still completely sabotaged their plans to move.’

Lenders often allow borrowers to move their mortgage to another property without fees, in what is known as ‘porting’ – but this doesn’t work for everyone. 

It can be problematic for home movers who may require a new mortgage in order to fund the purchase, whether they be upsizers requiring a bigger loan or downsizers looking to pay off some of the outstanding balance.

There may also be an issue if a home mover’s circumstances have changed.

‘With porting, you generally do not have to pay early repayment charges,’ says Sykes. ‘However, you still have to satisfy your lender’s requirements at the time of the new application.

‘For example, if you have since become self-employed your current lender may not accept your new mortgage application.

‘If you can’t therefore port the mortgage, you have to pay the early repayment charges and remortgage with another lender.’

There are ways to avoid these charges and give yourself greater flexibility to change mortgage as and when you need, according to Sykes.

‘Fixed-rate deals may be most peoples preferred choice, but tracker and variable rates may suit some people better as these can often come with flexible features like no early repayment charges so people can make a partial repayment as and when they need,’ said Sykes.

But tracker and variable rates also come with added uncertainty over future interest rate changes.

There are some fixed-rate products out there with no exit fees, but borrowers will need to lock in for a long time. 

Habito’s new 10 to 40 year fixed rate mortgages, for example, enable borrowers to fix the interest for the lifetime of the mortgage with no exit fees, albeit at a higher rate of interest than the market average.

What else should borrowers consider?

On top of early repayment charges, borrowers should also consider the upfront fees that typically come alongside a mortgage deal.

There is often an arrangement fee which can either be paid upfront or added to the mortgage amount.

This may mean the cheapest overall mortgage deal is not necessarily the one with the lowest interest rate.

For example, borrowers looking to remortgage might be drawn in by TSB’s new two-year fixed deal currently offering a headline-grabbing 0.99 per cent interest rate.

But the mortgage, which is available to borrowers with at least 40 per cent equity built up within their homes, also comes with a hefty £1,495 product fee.

For a borrower with a mortgage of £120,000 on a 30-year term, it would cost £10,735 over the initial two-year fixed period with TSB.

Nationwide currently offer a two-year fixed deal with a 1.54 per cent interest, but with no fee and the offer of £500 cashback.

Although, the monthly payments would be higher, the total cost of a £120,000 mortgage over the two-year period would amount to £9,484 once the cashback had been included.

However, whether or not it is beneficial selecting a higher interest rate with a lower product fee will largely depend on how large the mortgage is.

‘Often the lower the interest rate, the higher the product fee so for someone borrowing £100,000, paying a high product fee for a better interest rate may be an expensive thing to do,’ says Sykes.

‘Whereas for someone borrowing £500,000, the higher fee may be worth it in order to secure the lower interest rate.’

Borrowers not only need to be wary of paying the higher fees, but also the frequency at which they will be required to pay them if they continue to choose shorter mortgage deals in a bid for the cheapest interest rate.

‘Lower-rate products are typically the shortest fixes on the market, but, keep in mind that you’ll pay these fees every time you remortgage,’ says Will Rhind, head of mortgage advice at Habito.

‘Most mortgages have fees of around £999, so if you chose a two-year fix every time, you’re also going to pay that fee potentially 14 times over a 30-year mortgage term, costing you around £14,000 in fees alone.

‘Comparing that fee cost to taking a 5-year, or a 10-year mortgage each time, then the rate might be higher, but you’ll pay fees just six or three times over the lifetime of the loan, not 14 times.’

On top of product fees, lenders sometimes offer financial incentives such as covering the cost of a borrower’s legal fees or the mortgage valuation.

‘Lower-rate products don’t tend to come with many freebies, whereas those with higher monthly interest rates can come with free house valuations, no legal fees, the promise of cashback, and more,’ says Rhind.

‘Sometimes it can be worth it, but other times not – so you need to watch out for both low and high-rate mortgages and compare their true cost with everything – freebies and fees – included.’

You can do this using This is Money’s mortgage calculator. 

Another key consideration when applying for a mortgage is whether you might want the option to overpay your mortgage each year.

Overpayments are extra payments made on top of the usual monthly mortgage commitments, which will enable borrowers to pay off their mortgage faster and save on overall interest.

The majority of fixed-rate mortgage deals allow borrowers to make overpayments amounting to 10 per cent of the total outstanding amount each year without incurring early repayment charges.

Some are more flexible, but others may be more restrictive, so borrowers should always check before making overpayments.

‘The best way to save money on your mortgage is to pay it down as quickly as possible,’ says Rhind.

‘If you’re in a job where you’re paid bonuses or you’re likely to have a financial windfall or come into any inheritance, it’s important to know how much you’re allowed to overpay on your mortgage before you get charged a fee.’

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British ex-pat, 67, is forced to DESTROY his Spanish home two months after his wife died from cancer

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A British ex-pat has been forced to knock down his £130,000 Spanish home two months after his wife died from cancer.

But the situation for 67-year-old Gurney Davey, from Suffolk, could get worse because he is facing six months in prison after a mayor illegally gave him planning permission for the house.

‘I was distraught at first, my blood pressure was sky high and then I lost my wife,’ Mr Davey said this week as he was demolishing his home near Tolox, Malaga.

Gurney Davey, 67, has been forced to knock down his £130,000 Spanish home two months after his wife died from cancer

Gurney Davey, 67, has been forced to knock down his £130,000 Spanish home two months after his wife died from cancer

Despite Friday’s demolition also costing him €1,600, he added that it had actually come as ‘some sort of relief’ having fought the legal battle since 2004, over the house he built in 2003. 

It was then that legal firm, Manzanares, informed him he would be getting a licence for an ‘almacen’ (or storeroom), which would allow him to build the house.

‘We thought we had done everything right. We got legal advice and went through a lawyer in order to get permission to build the home,’ Davey explained. 

But he was later told that his house was one of around 350 that were illegally given planning permission by the former mayor, Juan Vera, who was eventually handed a prison sentence of his own.

Mr Davey was told his house had to be demolished for himself to avoid a six-month prison sentence, with the news coming just after his wife, Diana, died from bowel cancer at the age of 71.

‘Diana fought breast cancer for six years before bowel cancer – I am sure the stress brought it on.’ 

‘But thankfully it is now over,’ he explained. ‘It has been going on for so long now, I’ve finally come to terms with what needs to be done. 

‘Having it demolished was actually a relief,’ he added.

As he still owns the land, he can still live on it – just not in a house.

Despite Friday's demolition also costing him €1,600, he added that it had actually come as 'some sort of relief' having fought the legal battle since 2004, over the house be built in 2003. Pictured: Mr Davey's home in Spain before it was demolished on Friday

Despite Friday’s demolition also costing him €1,600, he added that it had actually come as ‘some sort of relief’ having fought the legal battle since 2004, over the house be built in 2003. Pictured: Mr Davey’s home in Spain before it was demolished on Friday

Mr Davey was told that his house was one of around 350 that were illegally given planning permission by the former mayor, Juan Vera, who was eventually handed a prison sentence. Pictured: Mr Davey's home in Spain after it was demolished on Friday

Mr Davey was told that his house was one of around 350 that were illegally given planning permission by the former mayor, Juan Vera, who was eventually handed a prison sentence. Pictured: Mr Davey’s home in Spain after it was demolished on Friday

Now, the father-of-three is planning a minimalist life staying in a converted van, so that his five dogs still have the space to roam.

‘This land is my home, it is my life and these dogs are all I have left.’

Whether or not he still faces a prison sentence, is yet to be confirmed.

The ex-pat only found out about the potential six-month sentence when a court document was delivered to a neighbour’s house.

‘I went straight to Tolox town hall with it. They told me I shouldn’t have received it yet,’ he recalled. ‘They said they were going to be sending the notification to me once they had stamped it.’

He had never been told about the court case that followed on from a Guardia Civil denuncia for an ‘illegal build’, but Davey’s two-bed home should never have been built according to the Malaga court.

Now, the father-of-three is planning a minimalist life staying in a converted van, so that his five dogs (pictured) still have the space to roam

Now, the father-of-three is planning a minimalist life staying in a converted van, so that his five dogs (pictured) still have the space to roam

In 2016, and then again in 2017, Davey was ordered to knock down his house, but, in common with a neighbour, he waited for more details.

While his Spanish neighbour, Irene Millan, 29, did eventually hear from the court again, she was given six months to ‘legalise’ her property – an option Davey was never given.

However, his neighbour’s apparent good luck turned into a poisoned chalice.

Having spent €20,000 with the town hall to legalise the dwelling, the court finally refused to accept the new paperwork provided by the council.

Instead, demolition was ordered – which went ahead last week.

To add insult to injury Irene’s 54-year-old father, Manuel Millan, whose name was on the deeds, was also sentenced to six months jail and handed a fine of €6 a day for a year.

Whether or not he still faces a prison sentence, is yet to be confirmed. The ex-pat only found out about the potential six-month sentence when a court document was delivered to a neighbour's house

Whether or not he still faces a prison sentence, is yet to be confirmed. The ex-pat only found out about the potential six-month sentence when a court document was delivered to a neighbour’s house

As he still owns the land, he can still live on it - just not in a house. Pictured: Mr Davey, a former builder, uses a JCB digger to demolish his own home

As he still owns the land, he can still live on it – just not in a house. Pictured: Mr Davey, a former builder, uses a JCB digger to demolish his own home

The couple, originally from Suffolk in the UK, spent £130,000 building their property.

‘It came as a package – a plot with a new home on it.’

Davey admits he and his wife were perhaps naive to follow the advice of their lawyer.

The lawyer, from legal firm Manzanares, told them that planning permission would be applied for as an almacen – or ‘warehouse’.

Mr Davey (pictured) was told his house had to be demolished for himself to avoid a six-month prison sentence, with the news coming just after his wife, Diana, died from bowel cancer at the age of 71

Mr Davey (pictured) was told his house had to be demolished for himself to avoid a six-month prison sentence, with the news coming just after his wife, Diana, died from bowel cancer at the age of 71

This way it would come under the remit of Tolox town hall, which would give permission and later they could ‘legalise’ the property.

The language of one legal letter suggests this would be a mere formality, but the property never got legalised.

In fact, the Tolox mayor of the time, Juan Vera, has since been jailed and fined for his part in a scheme.

In most cases the mayor used the very same ‘lax’ procedure of applying to build an ‘almacen’ to try to keep the prying eyes of the Junta authorities away.

‘We thought that was the way things worked in Spain,’ said Davey, a retired builder. ‘We went to see a lawyer and got advice. It turns out that was not the smart thing to do.

‘Why would we deliberately try to build illegally? It makes no sense that we would sell up everything in the UK and risk it all.’

Mr Davey had earlier said that he was forced to ask the town hall for permission to knock his own property down.

‘I will do it myself. I will borrow a JCB from someone and flatten my home of the past 17 years. I will not let the town hall do it and charge me more money.’

It is not the first time British expats have had their homes demolished in Andalucia, with the Priors, in Almeria, the most famous victims.

They still live in the garage of their house today, over 10 years since the house was knocked down in Vera. 

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Two teenagers died after separate incidents in Dublin and Waterford

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Two teenagers have died after separate incidents in Dublin and Waterford on Wednesday.

Gardaí in Ballyfermot responded to a call at an equestrian centre at Tay Lane, Co Dublin, at about 2pm.

Dublin Fire Brigade and the National Ambulance Service attended the scene and provided medical assistance to a 15-year-old girl who was injured during an exercise event.

She was removed to Children’s Health Ireland at Crumlin, where she later died.

Gardaí said the coroner has been notified. The Health and Safety Authority (HSA) has also been notified and will carry out an examination on Thursday.

Gardaí said investigations are ongoing. A file will be prepared for the Coroner’s Court.

Separately, gardaí and emergency services attended the scene of a workplace accident in Dungarvan, Co Waterford on Wednesday afternoon.

A boy was pronounced dead at the scene.

The HSA has been notified and will carry out an investigation. A file will be prepared for the coroner.

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Tritax EuroBox acquires Swedish logistics property for €47m

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Tritax EuroBox continues to expand its presence in the Swedish market with a €47m acquisition. The asset held freehold has a total gross internal area of approximately 28,900m² and comprises two purpose-built logistics facilities (one of 16,200m² and the other 12,700m²), located in the heart of the prime logistics location in the Port of Gothenburg. 

 

The Port of Gothenburg has been ranked as the most attractive logistics location in the Nordics for 20 years by Intelligent Logistik, the leading Nordic logistics media platform. There are currently no vacant logistics buildings in the port area. The Port is home to Scandinavia’s largest container terminal, which is forecast to grow over the coming years. The buildings are fully let to Agility AB, Nordicon AB and Vink Essaplast Group AB, generating a total annual rent of €1.79m on leases with a weighted average unexpired lease term of six years.  The rent reflects a rate of €62.50psm per annum.  All leases are annually indexed to 100% of Swedish CPI.

 

Nick Preston, Fund Manager of Tritax EuroBox, commented: “We are delighted to acquire our first asset in the Nordics which aligns with our disciplined investment approach and our long term strategic goals. The asset held freehold is located in the region’s strongest logistics market and offers asset management upside through working closely with the occupiers to achieve their business plans and increase rents to market levels. We expect to see continued strong market rental growth in the Port of Gothenburg, due to the natural constraint of land supply in the port area, and the increasing demand from occupiers. The Port of Gothenburg has a clear plan for growth, with significant infrastructure investment committed, further strengthening this location.”

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