Getting the best rate you can for your mortgage is vital – especially with the cost of living on the rise. Here’s some ways you can achieve the best possible deal, that’s right for you and your circumstances…
How do I find the best mortgage deal?
Getting the right mortgage deal is hugely important. It affects the rest of your household budget and, with energy bills rising and the cost of living on the up, getting the best deal on your most expensive monthly outlay has never been more important.
There’s a number of ways you can ensure you are getting the lowest possible interest rate available to you.
To start with, you can do some research online. There are plenty of online tools that will look for the best deal for you, depending on your circumstances.
You can also look on price comparison websites for deals on fixed rate tracker and offset mortgages. This online searching is useful to work as a guide to what you might be looking at. You can see how payments vary depending on your deposit and the type of mortgage, as well as how fixing a rate for anywhere between two and 10 years can change the monthly payments. You might like to take a look at our online Mortgage Calculator.
Using a professional mortgage adviser
Consulting a professional has a number of benefits. For a start, they are familiar with products across the entire market. But not only that, they can often access deals that are not generally available to borrowers, ie. you’re not going to find them on an online comparison site for instance. This ability can be particularly useful if you have unusual circumstances – perhaps you’re self-employed, own another property, or have a poor credit history.
Advisers can work in different ways – they may get commission from the mortgage company, or they may charge you a fee to do the work for them. This may vary and will often depend on factors such as the amount you want to borrow and the complexity of your situation. Make sure you are clear on this before you begin.
Independent advisers have other benefits alongside finding you great deals – they have extensive knowledge of the mortgage market so often understand which lenders look more favourably at different situations and they will often sort out any necessary forms for you, which is perfect if you have neither the time nor inclination to sort out paperwork yourself.
They will also be on hand to guide you through the whole application process and offer expert advice, so that you are less likely to get any nasty surprises along the way!
However, there is no substitute for expert advice, especially if your circumstances are less than straightforward.
There are two main types of mortgage product – a fixed rate ensures you are charged the same interest for a set number of years. You may need to pay a bit more each month for this facility, but you have the benefit of knowing that your payments will not go up during a fixed term.
A variable rate means that the interest rate changes as the Bank of England alters its interest rate. For the past few years, this will not have been an issue as rates have stayed particularly low, but with inflation on the up, it’s likely that interest rates will also go up again.
The more cash you have for the deposit, the more choice of product you will have. Lower-deposit mortgages tend to have higher interest rates, because the lender is taking more of a risk by lending to you.
If a small deposit is proving a real problem, it’s worth considering schemes that allow a family member to invest the deposit for you – such as those we outline here for MyBump2Baby. As long as you make your payments, after a few years, they will receive their deposit back, along with interest.
Income and employment status
For the self-employed, having at least two years of full accounts (prepared by an accountant) is normally what mortgage lenders want to see although there are a few that will accept one year’s full accounts. Even then, you may be limited to specific lenders and certain products – this is where it is worthwhile getting help from a professional, who is familiar with the companies that are happy to lend to the self-employed.
Lenders consider you self-employed if you own more than 20% to 25% of a business, and it’s where your main source of income is from. For some people, especially if they work part-time, getting another ‘employed’ job might be an option if it is proving a barrier to getting a mortgage – or at least one that offers a decent interest rate.
If your income is sporadic, or you need to include bonuses to borrow the amount you need, make sure you have plenty of evidence. For instance, a lender may want to see one or two years’ evidence of an annual bonus (from your payslips or P60s); some may want to see confirmation from your employer. It’s fair to say that some mortgage lenders are more bonus-friendly than others, so it’s worth doing your homework (or again speaking to a financial adviser) about this.
Looking to the future
It sounds odd, but the product with the cheapest monthly payment may not always be the right choice for you. Do think about what your future holds. Of course we can’t plan for every eventuality, but having some idea of what you are intending in the future can be useful – it’s one of the reasons we recommend cashflow planning. For example, if you are planning to start a family, or take a step back to study or retrain, a mortgage that guarantees fixed payments for the next few years could be really useful.
However, if you are in the very early stages of your career and know that your income will increase considerably over a short period of time, you may want to have more flexibility to move or upsize, so a fixed interest rate product that demands a high fee if you pay it off quickly may not be for you.
Products that can be ported to another property are also worth considering – maybe you know you will want to move to be near a certain school or to be closer to elderly parents in a few years – paying a little extra each month for a portable mortgage may save you money in remortgaging fees.
Again, getting an expert to help you make these decisions can save time and hassle as well as money in the long run – and having someone who is not emotionally invested in your decision is also invaluable.
You can check your credit rating online. If you see any errors, you can challenge them by reporting them to the credit reference agency. Within 28 days they must remove the information or explain why they don’t agree with you. During that time, the error will be marked as ‘disputed’, which means lenders can’t rely on it when checking your credit rating.
If there is negative information, it will stay on your report for six years. But if you had a good reason for the problem – perhaps you were ill and unable to work – you can add a note (called a Notice of Correction) to explain this.
If you have a good credit rating you are likely to be looked upon more favourably by lenders and have access to their more attractive mortgage deals. There’s a number of ways in which you can check and improve your credit rating.
If you are renting, and pay your rent on time, did you know that a private landlord can record your payments and forward them on to credit reference agencies? For example, if your landlord or lettings agency is signed up to a rent reporting initiative, such as The Rental Exchange Scheme, it can help private tenants boost their credit scores by paying their rent on time.
Your bank can also share your current account records with lenders with your permission – which is great if you keep your account in good order and it shows that you have regular income and affordable outgoings.
If you have a poor credit rating, you could sign up for a credit-builder credit card, which usually has a low credit limit and high interest rates. By using and paying off these cards each month, you can show that you are creditworthy and increase your credit score.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across England and Wales. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email firstname.lastname@example.org.
YOUR MORTGAGE IS SECURED ON YOUR HOME. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.