What mortgage should I get?

Published:
06 February 2013
Topic:
News,Money,Mortgages

Mortgage rates are hitting record lows as lenders start to become more generous with their funds - great news for existing homeowners and first-time buyers alike

The number of mortgages approved in December 2012 jumped to 55,578, according to the Council of Mortgage Lenders, compared to 54,011 in November while the average rate paid on new mortgages slipped by 0.07% to 3.65%.

Meanwhile, the government's Funding for Lending scheme is expected to continue to boost credit availability this year.

Getting the best mortgage could potentially save you thousands of pounds - but the right one for you will depend on a number of factors, including why you want to remortgage and how much you need to borrow.

Here are some common scenarios.

"I am coming to the end of my mortgage deal... "

If your current mortgage deal is coming to an end, now is a great time to find another one.

Chelsea Building Society has launched a two-year fixed rate mortgage priced at 1.89%, which is the lowest rate in history! The fee is £1,695 and you'll need a 40% deposit.

If you would prefer to fix for longer, first direct has launched the lowest ever five-year fixed rate mortgage at 2.69%. It comes with a fee of £1,999 and you'll need a slightly smaller deposit of 35%. Find out more in Laura Howard's article.

For borrowers keen to take a punt on interest rates staying low, HSBC has a lifetime tracker mortgage with a current pay rate of 2.38% (that's the Bank of England base rate plus 1.88%) and a £1,499 fee. You will need a 40% deposit.

The interest rate is not the only factor to take into account when choosing a mortgage, though.

Remember the fee will also have a big impact on the overall cost of a deal, especially if you only need to borrow a relatively small amount.

It could therefore be worth plumping for a higher rate with a smaller fee, the leading deal of which is Virgin's two-year fix of 2.49%, also in return for a 40% deposit. It has a £995 fee.

As ever do your sums.

"I can't raise a large deposit... "

Not everyone can stump up 40% of the value of their home, or of the property they want to buy which is where the cheapest deals lie.

However, there are still some great offers out there for those will less cash upfront.

Yorkshire Building Society's two-year tracker currently priced at 2.44% (or 1.95% above base rate), for example, is available to anyone with a deposit of at least 25% and comes with a fairly typical £995 fee.

For those able to raise no more than 10% of a property's value or purchase price, meanwhile, the best longer-term fix is the Post Office's fee-free, five-year deal at 4.55%.

You can shop around for mortgage deals at MoneySupermarket's mortgage channel.

"I am trying to buy my first home... "

One of the main aims of the Funding for Lending scheme is to help cash-strapped first-time buyers scuppered by the difficult economic backdrop to get that all-important first footing on the property ladder.

Market-leading deals available to help them do that at the moment include Chelsea Building Society's two-year fix at 3.69% with a £1,695 fee, and Yorkshire Building Society's two-year deal with a fixed rate of 3.79% and a fee of £995.

Both these deals can be accessed by those needing to borrow 90% of the purchase price.

It is also still possible to borrow 95% of the property value. More than 10 mortgage lenders offer mortgages at this borrowing level nationally, including Newcastle, Leeds and Nottingham building societies. But interest rates will be more expensive on these deals, often between 5% and 6%.

You can cut the cost by looking at schemes that involve help from your family though. The Woolwich's Family Springboard mortgage for example still only requires the first-timer to raise a 5% deposit but will allow any family member to put down a further 10% of into its Helpful Start savings account, where the money still stay for three years (earning interest).

As the buyer's deposit is now effectively 15%, they will get access to cheaper mortgage rates - the Family Springboard mortgage charges a fixed 4.69% for the three year duration.

Mortgage experts often advise first time buyers on a budget to opt for fixed-rate deals so that they know for sure what their mortgage payments will be - at least for the first couple of years.

"I am moving house... "

If you are currently paying your lender's Standard Variable Rate, or have no penalties tying you into your current mortgage, moving house is also a great trigger to switch to a more competitive deal.

Again, the right one for you will depend on how much deposit you can raise.

Those able to raise 30% of the purchase price of their new home, for example, could go for Woolwich's two-year tracker at 1.89% above base rate, giving a current rate of 2.39%, and with a £999 fee.

But if you have a 40% deposit, the Post Office five-year fix at 2.74% is definitely worth a look, especially as the arrangement fee is relatively low for a longer-term deal at £995.

Bear in mind that although it's possible to move house without switching your mortgage (most are 'portable'), this may not be the case - if you need to borrow a larger amount, for example or if the new property is not deemed adequate enough security for the loan.

You can shop around for mortgage deals for any situation at MoneySupermarket's mortgage channel.

"I am on an interest only deal that I can't renew... "

Interest-only mortgages were a popular way to borrow in years gone by.

Now, however, lenders are now much more cautious about deals of this kind and many have either tightened up their criteria or stopped offering them altogether. This has left people keen to switch to another interest-only mortgage, or increase their borrowing, in a potentially tight spot.

The good news is that many lenders will still allow customers on interest-only deals to increase their mortgage debt - with the extra credit borrowed on a repayment basis.

Certain lenders may even consider further interest-only arrangements, depending on your circumstances.

For more details on these and other options, interest-only mortgage borrowers can contact our mortgage partner, London & Country for free, independent advice on 0844 209 8725.

Please note: Any rates or deals mentioned in this article were available at the time of writing.

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About This Author

Jessica Bown

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Financial journalist

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