Remortgage Early Without Penalties!

Nationalised mortgage lender Bradford & Bingley is waiving penalties for Bradford & Bingley and Mortgage Express borrowers who want to leave.

Borrowers stuck paying a high rate on a Bradford & Bingley mortgage, including those who have a deal with its specialist buy-to-let subsidiary Mortgage Express, are being given a five-month reprieve to leave the lender without incurring any of the early repayment charges on their deal.

All customers who fully or partially redeem their mortgage between 1st February 2009 and 30th June 2009 will have their early repayment charges (ERCs) waived.

This means that borrowers who are either looking to remortgage or are on a high fixed rate and want to move to another lender are free to do so, even if the terms of their mortgage say they would ordinarily be liable to pay ERCs.

Who does this benefit?

The waiver is available to any customer with an ERC on their mortgage, but the lender thinks it will be of particular interest to:

• Those borrowers on high fixed rates compared to lower rates now available from other lenders
• Anybody who wants to take out additional lending, either now or in the future
• Buy-to-let property owners who want to remortgage or sell parts of their portfolio
• Residential property owners looking to sell due to financial concerns.

Is this a good move?

For those borrowers affected, yes. Bradford & Bingley is no longer offering any new products so cannot provide any additional borrowing, remortgages or better rates to any of its existing borrowers. It also admitted it may not be able to offer competitive deals in the future.

Before this announcement those with ERCs on their mortgage had a tough decision: stay where they are or pay the ERCs to leave the lender, which could amount to thousands of pounds. This five-month reprieve will give some borrowers to chance to escape their B&B mortgage and reassess their options across the whole market.

B&B says it has also introduced the waiver to support its borrowers that want to sell their property (and therefore redeem the mortgage). The lender said it appreciates that those with an ERC could be faced with a significant cost if they pay off their mortgage or switch it, which could be a barrier to them considering these options -- hence the temporary offer.

As well as those who want to switch lender, or sell their property and pay off their homeloan, it's worth noting that borrowers can also make ERC-free overpayments during the five months.

Any drawbacks?

This offer could benefit all borrowers with ERCs, but those borrowers who have little equity in their homes might find they actually have very few options to move.

There are now only a handful of mortgages available to those with a 10% equity stake, for example, and these may be more expensive than your current Bradford & Bingley pay rate.

This is even more of an issue for borrowers of the lender's specialist business Mortgage Express, which predominantly lent buy-to-let mortgages, as well as some self-cert and equity release products. The ERC waiver is available to its borrowers too, mainly landlords, which could be especially useful for those landlords looking to refinance their portfolio or buy or sell a property.

But current buy-to-let criteria is particularly strict and if a borrower doesn't have enough equity in their property, again, they might find no lender wants to lend to them. So for some, removing the ERCs won't help - because there is a complete lack of choice elsewhere.

No options

Research released this week by Moneyfacts said that landlords need a deposit or equity of at least 20% in order to get a mortgage --meaning 80% is the highest level of borrowing landlords can achieve. The total numbers of buy-to-let products have been almost obliterated in the last 18 months, falling by 93%.

And crashing house prices mean that most landlords have seen their level of equity fall rapidly over the last year or so, which could restrict their mortgage options considerably.

To add to landlords' woes, lenders have restricted other criteria such as the number of properties they will lend on and the maximum total advance.

All in all, it is difficult for buy-to-let borrowers in general to remortgage, so while the Mortgage Express ERC waiver will give some customers the freedom to move, those with a small equity stake may find they have nowhere to go.

B&B borrower? What should you do?

B&B has written to all those borrowers affected asking them to go back to their broker (if they were introduced to the lender that way), or to a different broker, for help with remortgaging should they choose to take advantage of the ERC-free offer.

For those customers affected, the five-month waiver could offer a way to get out of your mortgage contract without paying for the privilege. It is certainly something worth looking into.

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