The low-start mortgages begin on an interest-only basis at a fixed rate for the first three years before converting to capital and interest repayments for the remaining term of the loan.
At the end of the fixed-rate period the mortgage reverts to the standard variable rate, which is currently at 4.95 per cent. However, customers will be invited to review their mortgage when the fixed-rate period comes to an end, with the option of switching to another deal. Customers that do sign up for a low-start mortgage will not be permitted to take another similar product.
The maximum loan-to-value available for this alternative mortgage product is 80 per cent, which is charged at a rate of 3.69 per cent. LTV up to 60 per cent, 70 per cent and 75 per cent is also available at rates of 2.69, 3.09 and 3.19 per cent.
Fees for the low-start mortgages have been set at £999, regardless of the LTV, and each customer’s affordability will be carefully assessed at the outset, based on the higher capital and interest payment.
The maximum loan amount on the Clydesdale and Yorkshire mortgages is £999,999, as the lenders apply the same eligibility criteria and underwriting approach to all their products.
Low-start mortgages offer potential borrowers the option of low payments at the beginning of the term, before reverting to higher interest rates once the interest-only phase of the deal is complete.
Provider view: Andrew Pearce, retail director for Clydesdale and Yorkshire Banks, said: “At Clydesdale and Yorkshire Banks we are focused on meeting the differing needs of our range of customers and we recognise that there are stages in life when it would be useful to be able to make lower mortgage payments. Low-start has been designed to meet this specific need within the market for a mortgage, which initially offers lower payments, but also provides the peace of mind that the full loan will be paid off over the term of the mortgage.”
Adviser view: Kim Barrett, director of Hertfordshire-based Barretts Financial Solutions, said: “At first glance this product looks good. The fee is cheap and the rates are competitive. Anything that helps people get on the housing ladder is good and, if there are no penalties here, it is to be applauded. I am a fan of interest-free mortgages as they help borrowers from a planning perspective. However, after the three years there is a step-up in fees, so it is essential that borrowers plan carefully and ensure they are able to afford it when the rates go up. Most people aren’t getting pay rises at the moment, so it is important to check your earnings and check you can afford it in the long run.”
Charges: Each mortgage, regardless of the maximum LTV, comes with a fee of £999. Different rates will also be charged, depending on which LTV threshold is selected.
Verdict: Low-start mortgages can be useful if your client wants to reduce outgoings in the short-term and, for example, opts to use this capital to furnish the house. However, the temptation of low rates at the beginning of the term is often accompanied by higher costs later on, which must be taken into account. That said, while some providers charge high redemption fees to stop borrowers moving their mortgage once the fixed term expires, Clydesdale and Yorkshire bank have said that mortgages can be reviewed after the three-year period. In this case, it would be advisable to explore what other options could potentially be available after this short term.