Discount Mortgage
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Buying a home for the first time can mean lots of additional costs, including refurnishing or repairs. Most people find the initial period of a mortgage to be the most stressful, leaving them feeling overstretched financially. Lenders, therefore, have designed discount mortgages as a solution to this common problem.
What is a discount mortgage?
A discount mortgage is a mortgage which entails a reduction on a lender’s Standard Variable Rate (SVR) over a specified period of time. The rate of interest you pay is set at an amount below the lender’s SVR. The rate you pay moves up or down in line with any changes to the SVR. For example, the lender’s SVR is 5%, on which you receive a 1.5% discount. More...
| Lender | Rate | Duration | Standard Rate | Max LTV | Tie in | Proceed |
|---|
| Fixed (no tie-in beyond benefit period) |
| First Direct Offset | 5.49% | 2 years | 6% | 80% | No Overhang |  |
|
| Alliance & Leicester Prime | 6.14% | To Aug 2010 | 7.19% | 75% | No Overhang | |
|
| Derbyshire BS (Direct) | 6.79% | To Sep 2018 | 7.09% | 90% | No Overhang | |
|
| Fixed (with tie-in beyond the benefit period) |
| Market Harborough BS (Direct) | 3.99% | 2 years | 7.15% | 75% | Overhang | |
|
| Capped |
| Lender | Rate | Duration | Standard Rate | Max LTV | Tie in | Proceed |
|---|
| Light Adverse Payment History |
| Skipton BS | 6.19% | To Aug 2018 | 6.45% | 75% | No Overhang | |
|
| Ipswich BS | 6.49% | To Aug 2011 | 7.24% | 80% | No Overhang | |
|
| Medium Adverse Payment History |
| Heavy Adverse Payment History |
| Lender | Rate | Duration | Standard Rate | Max LTV | Tie in | Proceed |
|---|
| Discount (with tie-in beyond the benefit period) |
| Discount (no tie-in beyond benefit period) |
| HSBC Bank plc (Direct) Purchase | 5.43% | 2 years | 6.25% | 90% | No Overhang | |
|
| Mansfield BS (Direct) | 5.65% | 3 years | 7.19% | 75% | No Overhang | |
|
| Barnsley BS (Direct) Branch only | 5.69% | 2 years | 7.19% | 85% | No Overhang | |
|
| Market Harborough BS (Direct) | 5.95% | Term | 7.15% | 75% | No Redemption | |
|
| Lender | Rate | Duration | Standard Rate | Max LTV | Tie in | Proceed |
|---|
| HSBC Bank plc (Direct) Purchase | 5.43% | 2 years | 6.25% | 90% | No Overhang | |
|
| First Direct Offset | 5.49% | 2 years | 6% | 80% | No Overhang | |
|
| Alliance & Leicester Prime | 5.89% | 2 years | 7.19% | 75% | No Redemption | |
|
| Market Harborough BS (Direct) | 5.95% | Term | 7.15% | 75% | No Redemption | |
|
| Lender | Rate | Duration | Standard Rate | Max LTV | Tie in | Proceed |
|---|
| Direct Line | 6.39% | To Jun 2010 | 6.5% | 95% | No Overhang | |
|
| Bank of Ireland 1st Start | 6.99% | To Jul 2013 | 7.09% | 95% | No Overhang | |
|
| Bristol & West Mortgages First Start | 7.19% | To Jul 2013 | 7.09% | 95% | No Overhang | |
|
| Coventry BS | 7.39% | To Sep 2013 | 7.09% | 95% | No Overhang | |
|
| Lender | Rate | Duration | Standard Rate | Max LTV | Tie in | Proceed |
|---|
| Lender | Rate | Duration | Standard Rate | Max LTV | Tie in | Proceed |
|---|
| Barnsley BS (Direct) BTL | 6.19% | 3 years | 7.19% | 75% | No Overhang | |
|
| Principality BS Buy to Let | 6.39% | To Jun 2010 | 7.09% | 60% | No Redemption | |
|
| Lloyds TSB BTL (Direct) | 6.54% | To Aug 2011 | 7% | 80% | No Overhang | |
|
| National Counties BS Investment | 6.79% | To Aug 2013 | 7.35% | 75% | No Overhang | |
|
| Lender | Rate | Duration | Standard Rate | Max LTV | Tie in | Proceed |
|---|
| Market Harborough BS (Direct) | 6.1% | Term | 7.15% | 75% | No Redemption | |
|
| Scottish Widows Bank Offset | 6.29% | 2 years | 6.49% | 75% | No Overhang | |
|
| Yorkshire BS (Direct) | 6.54% | To Jun 2013 | 6.9% | 75% | No Overhang | |
|
| Lender | Rate | Duration | Standard Rate | Max LTV | Tie in | Proceed |
|---|
| Mansfield BS (Direct) | 5.9% | 2 years | 7.19% | 75% | No Overhang | |
|
| Principality BS Direct | 5.99% | To Jun 2010 | 7.09% | 75% | No Overhang | |
|
| HSBC Bank plc (Direct) Fee Free | 5.99% | Term | 6.25% | 90% | No Redemption | |
|
The initial pay rate would therefore be 3.5%. However, this rate is not fixed so neither is your discounted rate. Your discounted rate is tied to the SVR, which can can fluxtuate up or down at any time. If it rises to 6%, your discounted rate will be set at 4.5%. Likewise, if the SVR falls to 4% you have the potential to make big savings by paying only 2.5%.
Discount mortgage pros and cons
The discount you enjoy in the first few years of your mortgage can mean a big saving, and the discount usually means you are tied into your mortgage during the discount period. So, if you change your plans and need to repay your mortgage during the discount period, you will have to pay an Early Repayment Charge. However if you simply want to move house, you can usually take your mortgage with you.
It is still possible to have up-front charges for discounted mortgage deals. Some discount mortgages do run the risk of ‘payment shock’. Some (usually) short-term discount products offer a big discount, perhaps in the region of 4% for 12 months. When your mortgage is suddenly switched to the lender’s SVR rate, there can be a significant rise in repayments.
If the mortgage has a tie-in period that extends beyond the discount period, you may not be able to remortgage to a better deal without incurring fees.
Advice
Let us help you shop around for the best discount mortgage deal. Check out our best buy table, which allows you to compare deals on discount mortgages. We have also compiled a comprehensive list of the main discount mortgage providers; visit our A-Z directory for their details. Or maybe you would like to visit our Forum to see what other people have to say about mortgage providers and post your own message.
Finally, if you have had dealings with any provider on our A-Z directory, don’t leave without giving them a rating, we would appreciate your assessment.
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