Fixed/Capped Mortgage
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This section explains fixed and capped mortgages and shows how these mortgages can offer some protection against fluctuating market forces.
What is a Capped Mortgage?
A capped mortgage is an attractive option for someone unwilling to be tied to a fixed mortgage and at the same time nervous about the unpredictability of tracker mortgages. 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 capped mortgage is flexible in nature and can offer the borrower something of great value – peace of mind.
A capped mortgage has an interest rate calculated at a certain percentage above the Bank of England’s base rate (or the lender’s rate). While you may be paying an interest rate of 6% on your mortgage, your cap may be set at 7%. Or in other words, capped at 7%. This cap, or limit means you will not pay interest rates above that amount should the Bank’s (or your lender’s) rate exceed 7%.
The main benefit to this type of mortgage is two fold. A capped mortgage prevents you from paying overly high interest rates, as happened in the 1980s and early 90s. While at the same time permits you to benefit from any interest rate lows. If the rate remains low for some time, it can provide the perfect opportunity to make some savings.
Capped Mortgage Disadvantages
Capped mortgages usually have higher interest rates than variable or fixed mortgage plans. If rates go beyond a fixed mortgage interest rate of say 5.5% for a prolonged period of time, the capped mortgage will prove unprofitable. A fixed mortgage with a rate at 5.5% for example would provide better value should you be paying a 6% rate on your capped mortgage.
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Also, should interest rates remain low for years or even the entire duration of your mortgage term, you are liable to regret choosing a capped mortgage. There is an element of uncertainty with a capped mortgage, but there are limitations to the risk involved. It’s your choice.
What is a Fixed Mortgage?
A fixed mortgage plan enables you to repay the same amount every month. This means that for a fixed period of time you will have the peace of mind of being able predict your monthly expenditures. Fixed rate mortgages are popular during times of financial uncertainty or when interest rates are set to rise.
Fixed rate mortgages are falling victim to the credit crunch with lenders pulling the best fixed rate deals from the market. First Direct for example withdrew their mortgages from the market blaming an ‘unprecedented number of applications for its home loans.’ Consumers nearing the end of their current fixed rate deals are desperate for another fixed agreement before they all disappear. When a fixed rate mortgage plan runs its course, the consumer is switched to the lender’s variable rate, which at time of writing is around 7.25% on average.
Fixed mortgage interest rates are usually set lower than capped mortgage rates. However, there are some disadvantages to consider.
Fixed Mortgage Disadvantages
If mortgage rates drop below your fixed rate of say, 5.5%, you will miss out on savings you may have enjoyed with a variable or capped mortgage. This scenario is not much of a problem if interest rates drop in the short term, but are of real concern should low interest rates last for years.
If during the course of your fixed rate mortgage you should choose to switch to an alternative mortgage plan, you can expect to incur hefty penalties.
Our Advice
Compare fixed/capped mortgage offers on our comparison tables for the best buy mortgage deals. We also have a list of the UK’s main mortgage providers in our A-Z Providers page, where we can help connect you with the best mortgage lenders. Alternatively, perhaps you have had an experience with a mortgage lender which you would like to share, if that’s the case don’t leave without visiting our Forum. Our Forum is the place to leave a message and see what other visitors have to say about mortgage providers and their products.
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