Mortgage rates are rock-bottom right now, especially for first timers with smaller deposits or existing homeowners with limited equity in their home.
Two years ago if you borrowed 90% of the property value (a 10% deposit) the cheapest 2yr fix was 3.48% - now it's 2.04%, which on a £200,000 property is a saving of £5,050, even including fees. And for 95% LTV (5% deposit), rates are down too, from 4.79% to 3.29%. So here are my 13 top mortgage tips...
1. Every homeowner - check if you can save £1,000s on your mortgage
Check if you can remortgage (where you get a new deal without moving home) to substantially cut costs. This can mean big savings; as Caroline posted on my Facebook page: "Got a new deal saving £128/mth, £3,000 over 2 years. Thank you, Martin."
To work it out there's a range of info you'll need, crucially...a. Your current rate, monthly repayment & outstanding amount: If you're stuck on your lender's standard variable rate (SVR), it's especially likely you're overpaying, as these typically range from 4% to 5%. So big savings are likely.
b. Type: Is it a fix, tracker, discount or SVR?
c. Deal deadline: If it's a short-term deal (eg, 2yr fix), when it ends.
d. Term: How long it is, eg, 25yrs, and when it must be fully repaid by.
e. Penalties: Are there early repayment or exit penalties? If so, these often kibosh your ability to save.
Crucially, find your CURRENT loan-to-value (LTV) - the proportion of the value you're borrowing: eg, £80k on a £100k property is 80% LTV. For each 5% lower your LTV is, until 60%, the cheaper the deal. So if your home has increased in value since you got your mortgage, you may gain. See LTV help for full info.
2. First-time buyers - save in a Help to Buy ISA for a free £3,000
For anyone 16+ who's never owned a home, this is the place to save for a mortgage deposit. That's because as well as interest you get 25% added on top, up to a free £3,000. And don't think "I don't have time" - even if you're buying within 3mths you can gain. Full FAQs in Top 4% Help to Buy ISAs.
3. FREE 50-page MSE First-Time Buyers' and Remortgaging Booklets
A mortgage is most people's biggest expenditure, and even if you've done it before, that doesn't mean it's the same this time around. My fully updated guides take you through it step-by-step.
- First-Timers' Booklet 2016: Download instant PDF | Order printed
- Remortgage Booklet 2016: Download instant PDF | Order printed
Many of you give us great feedback, as Haruka tweeted: "Just applied for 2yr 1.69% fix. Thanx for the Remortgage Guide. Really useful."
4. Find YOUR cheapest mortgage, with our best-buy comparison tool
We include all mortgages available to brokers, plus the direct-only deals too.
Not as suggestions, but just to show the type of thing available, here are a few examples, on a £200,000 property on a 25-year term (as at 2pm Tue 12 April). Yet search your own for what suits you and do a proper comparison.
- 2-year no-fee fix at 90% LTV (10% deposit): 2.74%, no fee
- 2-year fix 60% LTV (40% deposit): 1.14% + £1,680 fee
- 2-year tracker 95% LTV (5% deposit): 3.99% + £35 fee
- 5-year no-fee fix 60% LTV (40% deposit): 2.29%, no fee
5. Don't just focus on rate - fees can cost you
The smaller your mortgage (especially if sub-£100k), the bigger the impact of fees.
The way to assess it is to spread the cost of the fees over the fixed or tracker period (as after you may shift deal). To help, the MSE Total Cost Assessment in our best-buys comparison does it for you.
6. Should I get a fix or tracker?
With a fix, the amount you repay is, er, fixed - it's a bit like an insurance policy against rate rises. You usually pay extra for it, though right now they're only a smidgeon more.
With tracker deals rates move with UK interest rates, as do variable rates, though they can also move at a provider's whim.
Predicting interest rate moves is a tough game, so instead focus on your own finances. The more crucial the surety of knowing the cost, the more you should hedge towards fixing, and fixing longer. If a rock-bottom deal's your focus, hedge towards short-term trackers. Full help in Should I fix?
7. Mortgage brokers can help boost acceptance
You can, and often should, use a broker to help find the right deal. This isn't just for those who don't know what they're doing.
Brokers often have access to info unavailable to consumers, eg, lenders' credit and affordability criteria, so a good broker can ease acceptance by matching you to the right deal - and the application process is quicker. Some are fee-free on the phone (they get commission) but if you want face-to-face you'll usually pay. See Top mortgage brokers.
8. Yet brokers miss some mortgages...
A few lenders, incl First Direct, Yorkshire Bank & Tesco, cut brokers out and sell only directly 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.
9. Is your credit score good enough?
If it's not it can kill your chances of getting a mortgage or just mean you pay more. Whether you're a first-time buyer or remortgaging, managing your creditworthiness before application (preferably many months before) is very important. For what to do see my 35 tips to boost your credit score.
10. The dreaded affordability check... try to minimise outgoings at least 3mths ahead
These days lenders have to stress-test if your mortgage would be affordable if rates hit 6-7%. They will want evidence of income, big bills, expenses, even eating out. So being frugal in advance helps.
Now in general I am a fan of these checks for first-time buyers, as they ensure people don't overstretch their finances.
Yet if you're remortgaging, not borrowing any more, and your circumstances haven't changed, these tests now apply to you too. And ridiculously that means people are effectively being rejected and told "you can't afford a cheaper deal". As mcrhyshammer tweeted us: "Circs hadn't changed. No missed payments. £90k equity. Yet no one'd give us a mortgage."
11. You can get a Help to Buy mortgage, but the big scheme is mostly irrelevant to you
That much talked-about Help to Buy scheme allows people to buy a home with just a 5% deposit (95% LTV), but what's actually happening is the Govt is giving LENDERS help so they can offer more of these mortgages. That has worked, but when choosing a mortgage, whether it's Help to Buy or not is irrelevant to you.
The Help to Buy equity loan scheme is different: it's only for new builds and here, the Govt will lend you up to 20% (40% in London) interest-free for 5 years. There's also the Armed Forces Help to Buy.
Other schemes include shared ownership, which lets first-time buyers buy a share in the property, and rent the rest, and Social HomeBuy, which lets you own a share of rented social housing.
12. Use your savings to get a cheaper mortgage
At every 5% LTV threshold from 95% down to 60% (for first-timers, every 5% bigger the deposit up to 40%), mortgage deals get cheaper. So if you've cash that can get you over a threshold, it's often a big winner. The big impact is pushing from a 5% to a 10% deposit...
Imagine you've a £14,000 deposit for a £150,000 home, and want a £137,000 remortgage. That's a 9% deposit, and the top 5yr fix is 4.49%. Yet if you could wait or find an extra £1,100 to get over 10%, the top 5yr fix is 2.84%, saving £1,420/year.
More info on remortgaging in Should I overpay my mortgage?, and use the mortgage overpayment calc.
13. Don't fall for the hard-sell on mortgage extras
Lenders & brokers may try to flog you various insurance products with the mortgage. Yet you can usually do it cheaper elsewhere - see our Cheap Mortgage Life Insurance, Home Insurance and Mortgage PPI guides for full help.
This article first appeared in the weekly email on 13 April 2016.