Fixing in your rate
Interest rates were held down again this week at 0.5% marking 3.5 years of no change. But even the UK’s leading economists don’t know how long low interest rates will last – and with Santander announcing a 0.5% hike to its Standard Variable Rate (SVR) to 4.74% from October 3 – now is no time to rest on your laurels. So what’s out there for homeowners looking to fix in their mortgage rate?
So long as you have 35% equity in your home, First Direct has just launched a three-year fixed rate priced at just 2.74% with a £1,499 fee. Not only is this the market leading deal of its kind today, it’s also the cheapest in the UK since 2007. If you prefer to fix in for a shorter two years, the same lender offers a rate of 2.64% for a £1,999 fee at the same loan to value.
Post credit crunch, mortgage lenders can be extremely conservative when it comes to valuing your property – which it needs to do to ascertain how much it will lend. So, even if the estate agent values your home at a figure that would give you a generous 30% equity for example, for remortgaging purposes a bank or building society may calculate that you only have 10% equity.
But there are still some cracking new deals out for higher loan to values. HSBC for example, has just launched the cheapest seven-year fixed rate mortgage in history, priced at 4.89% in exchange for a relatively small booking fee of £599 and a 10% down payment.
This is a deal that will probably best suit more settled homeowners as, if you want to redeem the mortgage before the seven years is up, you will need to cough up 1% of the amount repaid for each year of the fixed rate period that still applies. In any case, applications must be received by October 14, 2012, so you’ll need to get your skates on.
Taking a chance with a variable rate
The differentials between fixed and variable rates are now almost non-existent but there will be other reasons that a variable mortgage may suit you more than a fix. Providing you have 40% equity in your home, HSBC is offering a lifetime tracker deal priced at 2.14% over base rate for the term of the loan, for a £999 fee.
While the cost of your mortgage is directly linked to base rate (which is only likely to go up in the short to medium term) the mortgage comes with no early repayment charges – which means you can pack up and leave for a better deal at any time. However, bear in mind that lenders price their mortgages in advance of rate rises so the deals available at that point are highly unlikely to be as competitive as what’s on offer today.
You can read more about the recent raft of market leading mortgage deals in our article, 'Take advantage of the mortgage rate war.' However bear in mind that rates can be pulled and replaced very quickly and information is only accurate at the time of writing.
Qualifying for the best deals
This is all well and good but the best mortgage deals – whether on the current market or even in history – will be totally irrelevant if you can’t qualify for them. And this is no easy feat.
Even five years on from the start of the credit crunch, banks and building societies continue to cherry-pick their customers with extreme care. They are under no obligation to lend to you or even tell you the reasons why you have been turned down. But at least getting ahead of the game before making your application will stand you in the best stead possible. So what can you do?
Take extreme care over your application
Lenders are perfectly at ease with throwing out your application at the first hurdle, so don’t give them more reason than they need. Make sure you are entirely accurate on your mortgage application form and don’t leave any boxes blank. This means filling in all phone numbers, including a work and home landline number, as not only can you be more easily contactable, you will appear as a more solid candidate for borrowing.
If you are not registered on the electoral role at your current address, get this done in advance of making your application by contacting your local authority.
Get on top of your credit score
Your credit score is absolutely paramount when applying for a mortgage – and the better the deal, the cleaner it will need to be. Ordering a copy of your credit report will enable you to see exactly what the lender does when making its assessment.
It’s your legal right to get a copy of your basic statutory report so the fee is just administrational at £2 – but if you are looking for something more detailed that you can regularly access, sign up to an online service with one of the credit reference agencies such as Experian or Equifax. You can compare providers, packages and prices at MoneySupermarket's credit report channel.
If you spot a mistake on your credit file get it corrected as soon as possible with a Notice of Correction. This is free of charge and lenders are legally obliged to consider your comments. You can find more tricks to improve your credit score in Melanie Wright’s article.
Hold off your application if you are new to your job
Lenders will generally want to see that you have been in your job for at least three months but others might require six months’ pay slips. If you are relatively new in your role or have recently switched from self-employment, holding off a few months before making your remortgage application could pay dividends.
Don’t overestimate what you can borrow
Going in guns-blazing with hefty borrowing requirements could backfire as the lender might then even be put off a second application for a revised smaller amount. As already mentioned, bear in mind that lenders’ valuation may differ widely from an estate agent’s who is touting for your business – so err on the side of caution.
You can read more about how lenders make behind-the-scenes decisions in our article Five reasons why you might be rejected for a mortgage, in which Britain’s largest mortgage lender, Halifax, spills the beans.
Seek out free advice
Certainly if your circumstances have changed since your last mortgage application, it’s worthwhile getting some independent advice on your remortgage. You don’t have to pay for this – just call MoneySupermarket’s mortgage broker partner, London & Country on 0844 209 8725.
Please note: Any rates or deals mentioned in this article were available at the time of writing. We're free, independent and compare all UK credit cards, as well as offering exclusive deals you can't get anywhere else. Contact MoneySupermarket.com at Moneysupermarket House, St David's Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2011.