Seven tips to help you find your way through the mortgage maze
Here’s what to consider – and avoid – when looking for a new mortgage deal, says Vicky Shaw
Finding the right mortgage deal isn’t always easy – and new research from the City regulator suggests many borrowers are getting it wrong. With a mortgage being the most costly regular outgoing for many people, this can be an expensive mistake to make.
Three in 10 (30%) customers fail to find the cheapest mortgage for them, according to the Financial Conduct Authority, which is looking at potential ways to make it easier for mortgage borrowers to shop around.
In the meantime, however, how can you boost your chances of finding a good deal and saving some cash? Here are some possible factors to consider – and pitfalls to avoid – when navigating the mortgage maze...
■ 1. Weigh up whether you want to go for a fixed or variable rate
Fixed rates give borrowers certainty over what their payments will be for a certain period – but if you’re taking out a longer-term fixed deal, you’ll also need to be sure that you’re able to lock yourself in for that length of time.
■ 2. Make the most of online tools
There are tools out there which can help you see what’s available quickly and easily – for example, MoneySavingExpert.com has a Mortgage Best Buys tool (moneysavingexpert.com/mortgages/bestbuys/).
■ 3. Don’t just be seduced by a low rate
Always consider the whole package when weighing up a mortgage deal, not just the rate, to work out the overall cost. Some mortgages will come with fees, while some may have perks such as cashback which may be worth considering. There has recently been a surge in the number of cashback deals on offer. Moneyfacts.co.uk says by mid-May, there were 1,315 mortgage deals on the market offering cashback – representing just under a third (28%) of the mortgage market.
■ 4. Bear in mind mortgage rates have already been edging up
While the Bank of England base rate remained at 0.5% in May, mortgage rates have already been edging up a bit recently. According to Moneyfacts, 27 providers increased their rates in April – some doing so more than twice.
Charlotte Nelson, a Moneyfacts finance expert, says: “It is important for borrowers to note that there does not need to be a base rate rise for mortgage rates to increase.”
David Hollingworth from broker L&C Mortgages says lenders have been tweaking and repricing their rates, although rates remain low by longer-term standards. He adds: “Although shorter-term deals remain popular, more borrowers have elected to lock their rate in for longer in a bid to keep tighter control of their mortgage costs.”
■ 5. Consider brokers carefully
Mortgage brokers have their fingers on the pulse when it comes to scouring the market for a good deal, and they understand key details about lenders’ criteria. But choosing the right broker for you could be vital. One question to ask could be whether they look at the whole of the market or make a selection from a panel of lenders. You may also want to consider recommendations from friends if they have used someone who was particularly helpful.
■ 6. Find out what re-mortgage deals are available
If your existing mortgage deal is coming to an end soon, make sure you don’t just end up sitting on a higher rate by default. Research from MoneySuperMarket found one in six (16.6%) people on a fixed-rate mortgage claim have no idea what will happen to their repayments once their fixed-term period comes to an end. Meanwhile, online mortgage adviser Dynamo and mortgage broker Countrywide have tracked the proportion of mortgage borrowers who ended up on their lender’s standard variable rate (SVR) after their initial introductory deal came to an end.
Seb McDermott, chief executive at Dynamo, says: “The research shows that far too many people are not switching mortgage deals in time. Last year, one in three mortgage holders ended up on their lender’s SVR rate for an average of 42 days after their existing deal expired. This can prove costly – to the tune of nearly £62 a week for the six-week period.”
■ 7. Finally, don’t forget about what else is vital while you’re thinking about the mortgage
Buying a new house can be a stressful time, with the mortgage being one important aspect to consider. But insurer LV= has found 27% of home owners didn’t spend any time researching which buildings insurance would be best for them, meaning they might not have had the right cover in place.