What Are Mousetrap Mortgages?
As lenders fall over themselves to offer ever more attractive mortgage offers, borrowers must first do their maths before embarking on an enticing deal offering a low introductory interest rate or a fee free deal.
How does an introductory rate of 2.25 per cent grab you? What about a fantastic mortgage deal with no fees or charges attached?
In the current climate borrowers are understandably anxious about the mortgage market and in particular the impending increases in the Bank of England Base Rate. It is all too easy to be enticed by such eye-catching mortgage offers. Borrowers should be wary however of such deals. Mortgage experts have identified that many such deals often carry a significant sting in the tail. In the case of jaw dropping introductory rates of interest, homeowners will be locked into the deal as the interest rate inevitably increases. Those borrowers who wish to move their mortgage early face hefty early repayment charges for the privilege.
The mortgage lender Abbey is the latest in a long line of High Street lenders to introduce one of these 'mousetrap' mortgage with extended tie in periods. Abbey who is the second largest mortgage lender in the United Kingdom first pulled the mousetrap mortgage off their shelves in 1998 but conversely carried out a U turn when it reversed its decision last month when it launched a home loan with an 18 month tie-in period.
Abbey are by no means on their own offering these mousetrap mortgages - Portman Building Society also offers extended tie-ins as does the Cheltenham & Gloucester, West Bromwich and Market Harborough.
On the flip side, mousetrap mortgages can be a very good way for first time buyers to get on the property ladder - Similarly to a discounted mortgage, this can offer minimal monthly payments in the early stages which might suit a professional expecting a significant pay rise in the need future or indeed an individual in professional training.
Many mortgage products with extended tie in periods will leave the borrower paying the lender's Standard Variable Rate (SVR) for a further 18 months. Lender's Standard Variable Rates are usually several basis points higher than the Bank of England Base Rate.
If extended tie-in periods do not appeal then there are of course other options available to the borrower. Most fixed rate mortgage products no longer carry overhang charges which means that after the fixed rate period comes to an end, the borrower is able to move their mortgage without being faced with any Early Repayment Charge.
About the Author
James Copper is a writer for the bond street jewellers Moira Jewels
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