A mortgage is a loan that enables most Britons to buy a house when they don’t have the capital upfront.
How can you find the cheapest deal? Money Saving Expert Martin Lewis revealed all.
He said: “New figures out by Halifax show house prices hit a record high in May, with the average house in the UK now worth £237,837 up 5 per cent in a year.
“one main driver of this is that borrowing is extremely cheap, allowing people to grab new cheap mortgages and buy or upgrade easily.”
What do you do to find your cheapest mortgage deal?
Check what your mortgage costs – and is it about to end?
If you’re remortgaging (ie, switching to save), it’s good to understand how your current deal works to see if it’s worth switching.
If buying a home, it’s also important to know the following about your prospective deal to help compare:
a) What’s the rate? Plus monthly payments and outstanding debt.
b) What type is it? Fix, tracker, discount, SVR.
c) When’s the intro deal over? Eg, when does the 2yr fix end exactly?
d) How long’s the full mortgage term? When must it be fully repaid? Eg, in 10, 15, 25 years.
e) Will I be penalised? Any early repayment/exit penalties?
Critically, work out your current loan to value (LTV) – the proportion of your property’s CURRENT value you’re borrowing. Eg, £90k on a £100k property is 90 per cent LTV. For each 5 per cent your LTV drops, usually until 60 per cent, the cheaper the deal. So if your home’s increased in value, as the reports say many peoples have, since you got your mortgage, you may gain.
Benchmark your cheapest deal with a mortgage comparison
For an easy benchmark of what’s available in your circumstances, start with a comparison site that includes all deals, including ‘direct only’, those that aren’t offered by a broker. These include Martin’s ‘Mortgage Comparison’ or sites such as MoneyFacts.co.uk.
Don’t just focus on rate though, the smaller your mortgage, the bigger the impact of fees.
A good way to compare mortgages is to divide the fee across the discount or fixed period. So a £1,200 fee on a two-year (ie, 24-month) deal is £50 a month – then add that to the monthly repayment.
For smaller mortgages it’s worth checking if your existing mortgage provider has a cheaper deal; as it may have no fees for shifting to it.
What counts these days though, is will you be accepted
In the good/bad old days of easy credit lenders would fling out deals to all and sundry are long gone, getting accepted is now the challenge. There are two key elements to this…
Is your credit score good enough? Your credit history is a huge part of whether you’ll be accepted for any type of credit, including a mortgage. So be careful before applying not to make too many applications for other credit, and never miss a repayment.
Are the repayments affordable? For the past couple of years, lenders won’t just check if you can afford the monthly repayments at the current rate, but they’ll also stress test affordability if rates were 6 per cent or 7 per cent.
So it’s really important you reel in your spending months before applying, as lenders will want evidence of income, big bills, expenses and even eating out.
To help match your characteristics to which mortgages are available is something a good mortgage broker can do that you can’t do yourself.
But do ask if the broker will check all deals available to them and not just a panel of lenders.
Also, check how much using a broker will cost and ensure you use a qualified one. For face-to-face help ask friends for local broker recommendation or use Unbiased or VouchedFor to find one. There are fee free brokers (they take a commission from the lender) available on the phone such as London & Country Mortgages.