Profile

So why the low profile?

If capped mortgages sound so good – and at first glance they do – then it is right to ask why they aren’t more popular or better known. Some say they offer such good value that lenders don’t want too many borrowers to take advantage of them. But another reason is that they come with some expensive strings attached – so independent experts often warn borrowers against them. The strings include high set-up fees. Researcher Moneyfacts says that several of the best capped deals come with application fees of £749. None cost less than £449. If you are a first-time buyer or re-mortgage customer borrowing more than 90 per cent of your property value you are also likely to be hit with a ‘high lending fee’ which can cost more than £1,000 as well. Then there are the big redemption penalties you will have to pay if you decide you want to switch to a different deal in the capped rate period.

One final wrinkle can also take the shine off what looks like a good capped rate mortgage. It is what’s known as a collar. These loans stop lenders from being too generous to their customers. As before the cap is the maximum interest rate you can pay. But this time the collar is the lowest you can pay. So if rates fall dramatically you won’t necessarily get the full benefit. Only a minority of capped rate mortgages come with collars as well. But it is worth making sure yours doesn’t before you sign up to it.