Mortgages - now's the time to act
A year from today, people may look back and say “I wish I’d sorted out my mortgage in August 2015”. Mortgage rates are just rising off all-time lows and Mark Carney, the Bank of England governor, is predicting UK rates will rise at the turn of the year. Money Saving Expert Martin Lewis is here with his top tips.
While no one can tell you whether this is the perfect moment, it’s certainly plausible that if you don’t act now, you may miss the boat. So anyone with a mortgage should urgently check to see if it’s the best possible deal as the potential savings are huge. Christopher tweeted me: “Sorted - my monthly repayments fell from £785 to £533”.
1. Do you know your mortgage rate and details?
A mortgage is the biggest expenditure most people have, so I'm always slightly surprised that when asked, not everyone knows their rate and details. So check that you know…
a. The current rate: And monthly repayment and amount outstanding. b. Type: Is it a fix, tracker, discount or Standard Variable Rate (SVR) – ie bog standard bank rate?c. Deal deadline: If it's a short-term deal, such as a two-year fix, when does it end?d. Term: How long is it, for example 25 years, and when must it be fully repaid by?e. Penalties: Are there any penalties if you repay or leave early?f. Your loan-to-value (LTV): The proportion of your home's current value you are borrowing. As an example, £80,000 on a £100,000 property means an 80% LTV. The lower the LTV, the better the deal you can get, so if your home has increased in value you may gain, even without other changes (both Nationwide and Halifax have tools showing the rough change in prices in your area).
2. Benchmark your cheapest deal at speed
Recently we’ve seen two-year fixed deals (for those with low LTVs) plummet to almost 1%, that is just unthinkably cheap, and longer fixes and variable deals are at or near historic lows too. For every 1% interest you can cut per £100,000 repayment mortgage, you can save £60/month.· Currently the cheapest two-year fix is 1.05% with a £1,995 fee and 60% LTV (Post Office).
· The cheapest two-year tracker is 0.98% with a £1,675 fee and 65% LTV (Chelsea BS).
· The cheapest five-year fix is 2.14% with a £1,675 fee and 65% LTV (Chelsea BS).
· The cheapest lifetime tracker is 1.99% with a £950 fee and 65% LTV (First Direct).
A host of factors affect what your personal cheapest deal is, so use a comparison site, one that includes the whole of market (some exclude direct only deals) such asMartin’s Mortgage Best-Buys Comparison or Totally Money, and plug in your home’s value, the amount you want to borrow, and other details and it should then list what’s likely to be available to you.
3. Fees can be £1,000s - factor them in
The smaller your mortgage, the bigger the impact fees have, especially for mortgages under £100,000. So you should always incorporate the cost of fees – do this by spreading them over the fixed or tracker period (as after you may shift again to another deal). For example, £1,000 of fees over two years is £1,000 / 24 = £42 a month.
4. Can you afford a cheaper mortgage?
In April 2014,mortgage affordability checks were introduced to stop people borrowing beyond their means – I believe that’s definitely the right move for those getting new borrowing or extending their existing debts. Yet, perversely, most lenders (and from March 2016 all lenders) are forced to apply these rules to those trying to switch deal too, leading to some being told "you can't afford to get a cheaper rate”. I’m lobbying to try and get this changed.
Lenders will check if you can afford your mortgage if rates hit 6%-7% and they’ll also want evidence of income, big bills and expenses, even eating out, so be frugal in the months before applying to make your situation look as good as it can.
5. Is your credit score good enough?
These days it’s not just about getting the best mortgage, but the best that’ll accept you. Credit scoring plays a huge part of that, and managing your credit-worthiness months in advance is part of the task.
a) Ensure you’re on the electoral role, via About My Vote.b) Never withdraw cash on credit cards.c) Never miss a repayment on anything – even late payments hurt.d) Check your credit files at Equifax, Experian and Callcredit for errors – you have a statutory right to do this for £2.e) Avoid payday loans like the plague (both for your credit score and your financial health).f) Avoid other applications, such as credit cards and contract mobiles, just before applying.
6. Mortgage brokers can help boost acceptance
You can, and often should, use a broker to help you find the right deal. They have information unavailable to consumers, such as lenders' credit and affordability criteria.
So a good broker can ease acceptance by matching you to the right deal - and the mortgage interview's quicker too. But do ask if the broker will check all deals available to them and not just a panel of lenders.
Some phone-only brokers such as London & Country are fee-free, just getting commission from lenders - others charge fees like Which? (£499) and Charcol (depends on mortgage size but the minimum is £495) but can cover a wider range of products. If you want face-to-face help then ask friends for a local broker recommendation or use unbiased.co.uk or vouchedfor.co.uk.
7. Yet brokers miss some mortgages
Some lenders, including Yorkshire BS, Tesco and HSBC, largely sell only direct to the public, cutting brokers out. So brokers are allowed to exclude them, and some do (fair enough if they’re fee free, but if you’re paying a fee, check if they do or not), hence why using a broker in conjunction with a mortgage comparison site, which includes all these deals, is the right route.