DISCOUNT mortgages on British properties may look like good value but prospective buyers should remember the benefits are likely to be short-term with interest rates forecast to rise in the next few years. The discounts can cut up to five per cent off the standard lending rate which now stands at 8.1 per cent. And they are the mechanism behind the extremely low rates currently being advertised for British properties. But typically they last for only three, six or 12 months. Nia Williams, editor of Britain's What Mortgage, said banks and building societies used discount mortgages to lure borrowers into deals which quickly revert to the more profitable variable interest rate. She advised against signing up for a mortgage just because it offered a very low interest rate for the first six months. 'Once the discount lapses, mortgage repayments revert to the standard interest rate and buyers should be ready for [them] to double or treble,' she said. For example, the first year's repayment on a GBP100,000 (HK$1.26 million), 20-year loan at a discounted rate of 2.8 per cent would be GBP6,780. But it would jump to GBP10,836 after the mortgage reverted to the 8.1 per cent rate in the second year. Fixed-rate mortgages where interest rates are set for an agreed number of years were preferred by more than 80 per cent of British home buyers but when the cost of funding these loans went up at the beginning of this year, lenders started offering discount rates. In Hong Kong, discount mortgages offered by British banks and building societies are advertised by intermediaries. One recent advertisement by Connaught Financial Planning offered worldwide mortgages from 2.49 per cent. A spokesman declined to discuss which lenders it represented or how long the terms of the discount mortgages would last. Besides dramatic interest-rate rises, discount mortgages can have other catches including compulsory building insurance with a company nominated by the lender and, in some cases, compulsory life insurance and redundancy policies. Some lenders also charge high redemption penalties for borrowers who try to sell their homes within one or two years of buying. 'These mortgages need a lot of research and given their short-term benefits, most people are probably better off going for a fixed-term mortgage,' said Ms Williams. 'You won't get the initial discount but you will get the long-term benefit of having a fixed interest rate.'
