Lender: Regional Building Society
Product: 2 Year discounted rate
Rate: A variable rate, currently 6.59%, with a discount of 3.06% giving a current rate payable of 3.53% for a period of 24 months
Mortgage Adviser: Suzy Allen
Client name: Maggie and John
Mortgage Application date: 15/11/2022
Existing clients of mine, residential fixed rate was due to end 31/01/23. The clients had a portfolio of investment properties which they have sold over the last couple of years to reduce their outstanding mortgages and overall debt and increase their liquid assets (cash).
They were looking to switch their residential mortgage onto a full interest only basis due to the increase in interest rates to keep their monthly costs as low as possible. Their existing mortgage cost, on their previous fixed rate was £750 per month and this was going to be increasing to £1,700 per month. They also told me that they plan on paying off their mortgage by their anticipated retirement age of 70 so they can be completely debt free to make the most out of their retirement income.
Maggie and John will be making an overpayment on completion of the new mortgage deal by £150,000 to remortgage with a lower balance than the current mortgage balance with Santander. This is to keep monthly payments low and within budget of £600 per month. The budget for the new monthly mortgage payment has dropped as the clients are no longer receiving rental income. They are making this overpayment by using funds held in stocks and shares investments, or they may use the equity they have released from selling their buy to let portfolio.
We discussed both fixed rate, tracker, and discounted mortgage deals. The tracker deals are a good 2%+ lower than that of the current fixed rate deals, but unfortunately, we could not meet the interest only criteria with the most competitive tracker options and lenders. This is due to the lenders having a high minimum income requirement of £75k for a sole applicant or £100k joint income for interest only mortgages.
Having assessed their current income, the clients have a good level of disposable income, which means they can afford for the monthly payments to increase if the base rate increases, so we explored the discounted mortgage products. The discounted products are also saving the clients on monthly mortgage payments in comparison to moving to a fixed rate deal. As interest rates have increased since the clients took out their last mortgage product, applying for the tracker deal gently eases them into higher monthly costs and they can then budget accordingly. The money they are ‘saving’ will be put towards the cost-of-living increases.
We also discussed that the selected discounted product does have early redemption charges (ERC’s) however when exploring the ERC free products, they were circa £6k more expensive overall. This works out that if the clients did decide to move on to a fixed deal whilst tied in with the new lender on the discounted rate, paying the ERC would be cheaper than going ahead with the ERC free product.