This content originally appeared in the MSE weekly email on 7 October 2015.
Now's a stonking time to get a mortgage. Rates are close to rock-bottom – some with a 20% deposit may pay just 1.69% for a 2yr fix or 2.69% for a 5yr fix (with chunky fees). This doesn't automatically mean it's a great time to buy though – a big part of the decision is house-price moves, but no one truly knows what'll happen.
Instead, look at your finances – is your deposit big enough, income stable, credit score good and can you afford repayments? If so (especially if buying doesn't cost much more than renting) it may be YOUR time to buy. Here are 14 quick tips...
1. It's all about the deposit – I say you need 10%. I know the Chancellor's pumped 5% deposit Help to Buy mortgages (see point 4), but rates are horrid. So push to get over the 10% threshold, where they plummet.
Here are some examples of the cheapest open-to-all 2yr fixes with similar fees on a £150,000 home, on a 25-year repayment mortgage (though always check for YOUR best deal).
– 5% deposit: 3.98% so monthly payments of £751
– 10% deposit: 2.38% so monthly payments of £598
– 20% deposit: 1.69% so monthly payments of £491
– 40% deposit: 1.19% so monthly payments of £347
As you can see it gets cheaper again at 20% or a huge 40%, but the really big change is 5% to 10%. If you've less, can you wait?
2. FREE 60-page First-Time Buyers' Booklet. A mortgage is most people's biggest expenditure, so make sure you really know what you're doing. My fully updated guide takes you through step-by-step. As Katie tweeted: "Just read the First-Time Buyers' Mortgage Guide from start to end. Martin Lewis knows his stuff."
– First-Timers' Booklet 2015: Download instant PDF | Order printed
– Remortgage Booklet 2015: Download instant PDF | Order printed
– Buy-To-Let Booklet 2015: Download instant PDF | Order printed
3. The new Help to Buy ISAs are a no-brainer. From 1 Dec, first-time buyers can save for any mortgage deposit (not just Help to Buy) in one. For every £200 you add, the Govt adds £50. See Help2Buy ISAs.
4. Yet the Help to Buy scheme itself is mostly irrelevant to you. Under the Help to Buy guarantee scheme, the Govt gives LENDERS an assurance that helps them offer more 5% deposit mortgages. It's worked, there are more. Yet when you choose, the fact it's Help to Buy makes no difference.
The separate Help to Buy new-build scheme is different & needs some reading. Full info on all in our Help to Buy & Other Schemes guide.
5. Benchmark your cheapest deal at speed. OK, so mortgage rates are low, yet many factors affect your top deal. To find your cheapest we've our...
Mortgage Best Buy Comparison Tool
First-Time Buyers' Mortgage Best Buy Comparison Tool
(or alternatively, our Remortgage or Moving Home tools)
6. Is your credit score good enough? This has become a huge part of whether you'll be accepted. So a good time in advance, start measuring it – see my 36 tips to boost your credit score.
7. Minimise your outgoings AT LEAST 3mths ahead. Many mortgage applications are rejected for failing affordability checks which the regulator introduced in April 2014 – incl stress-testing it's affordable if rates hit 6-7%. So they'll pore over your expenses, even gym memberships & eating out. See full Affordability Help.
8. Mortgage brokers can help boost acceptance. You can, and often should, use a broker to help find the right deal. They've info unavailable to consumers, eg, lenders' credit and affordability criteria. A good broker can ease acceptance by matching you to the right deal – and the application process is quicker. See Top Mortgage Brokers.
9. Yet brokers miss some mortgages... A few lenders, incl First Direct, Yorkshire Bank & Tesco, cut brokers out and sell only direct to the public. So some brokers can and do exclude them – we suggest you use a broker in conjunction with our mortgage comparison, which has all these deals.
10. A tool to factor in fees to see each mortgage's true cost. The smaller your mortgage, (especially if under £100,000), the bigger the impact of fees. To assess, spread fees over the fixed or tracker period (as after you may shift to another deal). To help, the MSE Total Cost Assessment in our best buys comparison factors both fee and rate for your true cheapest.
11. Interrogate your options with eight calculators. Now you know what rates are possible, use our mortgage calculators to compare deals, find monthly payments, see how much you can borrow & more...
Ultimate Mortgage Calculator
Eight tools to home in on the right answer for you, incl...
Basic Mortgage Calc | Compare Two Mortgages | How Much Mortgage Can I Get? | Compare Fixed Mortgages | Saving For A Deposit
12. Should I get a fix or tracker/discount? With a fix, the amount you repay is, er, fixed, like buying insurance against possible rate rises. Variable deals move with UK interest rates (sometimes just at the provider's whim). Currently you only pay a touch more to fix.
It's difficult to predict future interest rates, so focus on your finances – the more crucial the surety of knowing what you'll pay, the more you should hedge towards fixing, and fixing longer. If cracking a rock-bottom deal's your focus, hedge towards short-term trackers. See full pros & cons in Fix vs Variable.
13. Don't fall for the hard sell on mortgage extras. Lenders & brokers may try to flog their mortgage life insurance, home insurance or mortgage PPI. These can be expensive so use the links above to check what you need and how to buy cheapest. Also check if you're in the right council tax band.
14. Finally... renting's not a dirty word. Many, especially younger people, think they must move heaven and earth to buy. Yet it's best to ensure you're financially stable before such a big commitment.
If not, you could lose the home or be in negative equity (where your mortgage debt is more than your home's value). Don't push yourself to get an unaffordable mortgage – renting can be a winner (certainly if house prices drop). More in 50+ Renting Tips.