Watch that mortgage

Bank of England interest rates have been steady since August 2005 and even that move was southwards. Why then are thousands of mortgage customers up in arms about an unexpected and unwelcome increase in the cost of their mortgages?Customers of the Nottingham Building Society have been staggered to receive letters from the Nottingham advising them of an interest rate rise, via an increase in its SVR (standard variable rate). Mortgages linked to the SVR have had the interest rate raised from 6.39% to 6.49%In the early part of 2006, the Nottingham Building Society made the headlines by topping the best buy mortgage tables for a number of weeks, offering a three year discount at only 4.35%, so this move has been seen as quite a turn-around and many brokers are less than complimentary about the move.

N&P (Norwich and Peterborough) are another society who has raised their SVR from 6.3% to 6.49%. This will not concern most of N&P’s borrowers, as most of their deals are of the tracker type, which is linked to base rate.

These are both medium sized building societies. A spokesman for the Nottingham says that the less than £2 per week increase for the average borrower means that they are still getting great value. SVR’s on average work out at around 6.59%.

There is very little a borrower can do to improve the situation, if you’re part way through the discount term. If you move to another company, then you’ll be hit by early redemption payments. If you’re approaching the final months of the agreement then you should look around with the idea of re-mortgaging.

The other type of deal to be approached with caution is the cash-back option. Often carrying higher fees, customers are also generally tied in to a higher interest rate. You would be well advised to check the terms and conditions thoroughly or you could end up making a costly mistake.

Northern Rock is just one of the banks offering cash-back mortgage deals. Until recently their borrowers could choose to receive £1,000 at the start of the deal, provided this cash was returned if they changed to another mortgage within three and a half years. This has now changed and the sum is reduced to £750. The terms of the offer have altered too. They now offer an improved deal for borrowers re-mortgaging to Northern Rock from elsewhere. The repayment time if they transfer to an alternative Northern Rock deal or redeem the mortgage is now only two years.

Whilst this is a good move for new customers, it is seen as unfair to their current mortgagees. An existing customer re-mortgaging with Northern Rock and taking the cash-back option will be tied in for three and a half years, whereas if you’re a customer making the move from another lender the tie is just two years.

It seems as though times are changing. For the very best advice on the current mortgage situation and a clear idea of what is available the best advice we can give is to contact an on-line broker. Often the best deals are reserved for internet customers and by using a broker you’ll be offered a range of options, tailored to suit you.