Saturday, 4 August 2012

Tesco launches two-year fixed rate mortgages at 9.59%

From Money Marketing:

Tesco Bank launches mortgage range

Rates start at 3.19 per cent for two-year fixed rate up to 70 per cent LTV... Up to 80 per cent LTV, it charges 3.99 per cent for a two-year fixed rate...

Sounds very appealing, but let's crunch:

A. £100,000 x 70% = £70,000 x 3.19% = £2,233
B. £100,000 x 80% = £80,000 x 3.99% = £3,192

Subtract A. from B. and you'll note that the extra £10,000 mortgage in B. costs you £959 a year, an effective interest rate of 9.59%.

This used to be known as higher lending charge/mortgage indemnity guarantee and it all comes to the same thing, i.e. the 9.59% can be split up into 3.19% actual interest plus a 6.4% higher lending charge, which seems to be the most honest way of presenting it.


QP said...

You missed the £995 product fee Mark, that's 1% of your mortgage total(!)

Mark Wadsworth said...

QP, well spotted.

Sarton Bander said...

worth reading..

Mark Wadsworth said...

SB, that's an interesting dilemma isn't it? The proper right wingers don't want to waste taxpayers' money or do people who've "fallen on hard times" a favour. Whereas the faux right wingers would think it's a great idea to prop up house prices and give money to landowners.

If the banks were still in the equation, the balance would tip in favour of bailing them out (oh great creators of wealth!), but as it's taxpayer v landowner, it's a more even bet.

TheFatBigot said...

If I understand it correctly, the higher rate applies to any LTV between 70% and 80%.

By taking the higher limit you understate the additional charge. Borrowing £100,000 at 71% LTV costs about £600 a year more for £1,000 more borrowing, it's about £640 for an additional £2,000 and so the marginal rate diminishes up to a mere 9.59% for the full 80%.

Mark Wadsworth said...

TFB, well spotted, but the article says 3.59% for between 70% and 75% LTV.

71,000 x 3.59% = £2,549
70,000 x 3.19% = £2,233

so yes, the extra £1,000 in this case costs you £316 a year, a marginal interest rate of 31.6%.