Top 10 tips if you’re looking for a mortgage

Mortgage lending is down, so if you’re in the market for a home loan, how can you be sure of finding the best deal?

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The British Bankers’ Association (BBA) revealed this week that the total amount lent by UK banks during January was a staggering 26% down on the previous month.

Experts blame a combination of the end of the stamp duty holiday and adverse weather conditions for hitting the housing market.

However, another issue is that mortgages are still pretty difficult to come by, so here are our top 10 tips for finding the best deal for you.

One: Get up to speed with your credit rating

Whether you’re applying for your first mortgage or remortgaging with a different lender, it’s worth getting hold of your credit file first.

“It makes a lot of sense to check your credit report before approaching a mortgage lender,” said James Jones at the credit reference agency Experian.

“That way, if you spot a discrepancy you can set the record straight before any credit checks take place, avoiding potential problems further down the line.”

You can apply for your credit file through a number of different agencies, use moneysupermarket.com’s credit checking channel to find the best price.

Two: Get pre-armed with your loan-to-value

If you’re remortgaging, get a ‘post housing crash’ update of your current loan-to-value, i.e. the proportion of your home’s worth that has a mortgage secured against it, before making any applications.

The cheapest deals are still reserved for borrowers with loan-to-values of between 60% and 70%, so knowing this information before you start looking could save you a lot of time and disappointment.

One way to get a rough idea of the value of your home is through using a website like Zoopla that tells you the estimated value of properties on your street.

Hannah-Mercedes Skenfield, head of the mortgage channel at moneysupermarket.com, cautioned: “Bear in mind this is only a benchmark. When it comes to remortgaging, lenders may value your home at less than the open-market value an estate agent would provide.”

Three: Keep within a 25-year term

If you’re switching your mortgage debt to another lender, you may be offered the chance to start your 25-year repayment term from scratch – although this depends on your age.

While this might seem an appealing option on the face of it, as the arrangement will reduce like-for-like monthly payments, extending the term of your original loan will cost thousands more in interest.

For example, if you borrow £150,000 at a typical 4.5% for the remaining 15 years, the overall sum repaid would be £207,000. The same loan taken over a 20-year period will see you repay £228,000.

Peg the same loan back up again to a 25-year term and it will cost a staggering £250,000 in total.

Four: Stick with your monthly payment

Mortgage rates have been tumbling in recent years – even in recent months and weeks - so if you are switching deals, it’s likely you will land yourself a better interest rate in the process.

Again, while this will translate into a welcome lower monthly payment, why not keep paying the same sum anyway. Most standard deals allow you to overpay by up to 10% a year.

As well as shelling out less in total interest, this also means you’ll pay off your mortgage ahead of schedule.

Five: Fix if you need to

Fixed rate mortgage deals are currently priced around 1% higher than their tracker counterparts, according to David Hollingworth at broker London & Country.

But he doesn’t think this is a reason to avoid them. He explained: “Comparing fixed rates with trackers is like comparing apples with pears. With a fixed rate you are also buying the peace of mind that your monthly repayment will be the same over the term of the deal. This means borrowers on a strict budget, first-time buyers for example, should probably opt for a fixed rate regardless.”

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Six: Think ahead on tracker costs

Base rate has remained slumped at 0.5% for almost a year now, but there’s no guarantee it won’t rise. You should consider that when deciding whether to fix or go for a tracker.

Hannah-Mercedes warned: “In this case, if you do decide to opt for a tracker which is directly tied to the base rate, do some sums first to see how your budget would hold up if interest rates went up.”

Seven: Factor in fees

Don’t be seduced by a mortgage deal’s headline rate alone. Most arrangement fees now fall in the region of £1,000, although some of the very cheapest deals will charge more.

“Borrowers should factor the fee into the total cost of the mortgage over the scheme period," said David Hollingworth.

Eight: Go large on the deposit

Put down the biggest deposit you can manage. In these post-credit crunch days, the very cheapest mortgage rates are reserved for borrowers with the very fattest deposits.

For example, so long as you can put down a 35% deposit, First Direct is offering a table-topping lifetime tracker currently priced at 2.39%.

Meanwhile, borrowers who can only lay their hands on 10% of the property value will have to pay a starting rate of 4.99% for the best lifetime tracker available, which is from HSBC.

Nine: Weigh up the value of compulsory extras

Some mortgage lenders still insist that, in return for a certain deal, you must take a tied product like building and contents insurance, or even a packaged current account that charges a monthly fee.

David Hollingworth advised: “Always assess the cost of tied products and whether it will be a tangible benefit to you, independently from the mortgage you are being offered.”

Ten: Shop around

For most of us, our home is the biggest purchase of our lives, so do your research and find the cheapest mortgage deal you can.

Once you have carried out your preliminary homework, so you know your property’s value and your credit score, make sure you then shop around thoroughly and get the best deal for you and your circumstances.

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

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