Mortgage blog: Getting higher interest rates if you’re saving to buy a home
Over the last few years, lenders have come up with a range of innovative ways to generate mortgage business. For example, there are now a range of first-time buyer mortgage products on the market that allow parents or even grandparents to help their children onto the property ladder.
Other lenders have introduced savings products which offer higher interest rates to investors looking to save up a deposit. Now, a leading consumer group has reported that these accounts are proving particularly popular.
New research from the consumer group Which? has found that potential homeowners are keen to take advantage of savings accounts which offer high rates when linked to a mortgage. Which? has found that savings accounts with bonus rates paid when the saver subsequently takes out a mortgage have proven particularly popular with consumers visiting their online savings comparison service.
Which? found that the Nationwide Save to Buy ISA Issue 2, which offers a lump sum cashback reward on completion of a Nationwide Save to Buy mortgage, has attracted more clicks than any of the other 882 savings products compared in their tables.
Which? also reports that a similar product offered by Monmouthshire Building Society is currently the fifth most applied-for savings product.
Savings accounts offer high rates if you’re saving for a deposit
There are now a number of banks and building societies that offer savings products specifically designed to help you to put money aside for a mortgage deposit. These accounts are designed to pay an attractive rate of interest on the condition that you subsequently take your mortgage with the same provider.
For example, the Monmouthshire First Home Bonus Saver pays a fixed conditional bonus of 3.00% AER/Gross if you take out a Monmouthshire Building Society Mortgage within five years of opening the account.
However, if you’re tempted by such a product then it does pay to read the terms and conditions. Keith Osborne, editor of whathouse.com, says: “These accounts may look attractive and in certain cases they can help you to earn a decent return while you’re saving your deposit. However, it’s important that you read the small print. For example, the Monmouthshire product requires a minimum monthly deposit of £20 and it only allows four withdrawals each year. There is also a maximum annual investment of £6,000 which may not be enough if you’re looking to save a large deposit.
“Similarly, the popular Nationwide Save to Buy ISA doesn’t allow any partial withdrawals and you have to pay in at least £50 per month.
“The other factor to consider is that in order to qualify for a bonus you will often have to take your mortgage with the savings provider. This restricts your mortgage choices and may mean that you don’t get the best deal on your home loan.”
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