Best mortgages October 2019
From razor-sharp interest rates to £0 application fees and flexible features, learn how to find the best mortgage for you.
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How do I compare mortgages to get the best deal?
There are a few key things every borrower needs to look for when hunting for the perfect mortgage: rates, fees and features. When it comes to the best mortgage, you should be looking for:
- The right type of mortgage. There are many different kinds of mortgages available that have differing features. It’s important to know which type is best for you. For example, fixed rate mortgages offer you the safety of knowing how much your monthly payments will be for a fixed period of time. With variable rate mortgages the interest rate you pay (and therefore your monthly repayment amount) can be changed at the lender’s discretion. Offset mortgages can help you cut down your interest repayments.
- The lowest interest rates. A lower interest rate means lower repayments. Shaving just a few points off your interest rate can unlock enormous savings over the life of a 25-year mortgage.
- Affordable monthly payments. Your monthly repayment is based on the mortgage amount, the interest rate and the length of the mortgage. Once you know your monthly repayment, its affordability will depend on your income minus other monthly expenses that you incur such as groceries, utility bills and regular leisure activities like gym membership. Mortgage providers usually factor these costs in before approving a loan application, but it’s still vital to do your own homework before you apply for a mortgage.
- Affordable deposit/LTV requirements. Each mortgage requires a minimum deposit. This is normally expressed by the product’s LTV (loan to value) – for example, if the maximum LTV available is 75%, and you are buying a £200,000 house, you’d need at least a £50,000 deposit. Most providers will only present you with products that you’d be eligible for based on the deposit you have available.
- Limited fees. Fees are also something you need to check when comparing mortgages. Loans that hit you with hefty fees can cost you more than you realise over time, especially if you bundle the fees in with the loan amount. Check a loan’s comparison rate to get a better idea of the added cost of fees.
- Added flexibility. Home loans with extra features can offer you more flexibility in how you manage your loan and make repayments. Some mortgages allow you to make overpayments, which can help you pay off your mortgage sooner, but usually this option comes with some terms and conditions and possibly some fees attached. Other mortgage providers may offer mortgage repayment holidays, which allow you to temporarily stop or reduce your monthly mortgage repayments. This can be useful if, for example, you’re self-employed or a freelancer and your monthly income tends to fluctuate.
Tools to answer common questions
How much can I borrow?
Estimate the size of mortgage that will be available to you based on factors like your income and deposit.
How much will it cost?
Estimate your monthly repayments in seconds from your mortgage amount, interest rate and duration.
How much stamp duty will I pay?
Buying a property over £125,000? Calculate how much you will pay in stamp duty with our handy calculator.
What’s the best home loan for me?
Once you’ve understood the basics you need to look more closely at your own specific needs. To find the best home loan for you, consider these questions:
- What is your current financial situation? Take a hard look at your savings, income and expenses to work out how much you can afford to borrow. Be realistic, calculate your monthly repayments and factor in future rate rises to make sure you don’t get stuck with repayments you can’t afford.
- What is your property strategy? The best mortgage is one that matches your buying intentions. If you’re a young first home buyer with limited funds, you’re looking at a very different mortgage product compared to a middle-aged investor buying a second or third property.
- What are your future financial needs? Your needs change over time. You might want a basic, no-frills loan now and one with more features later on as your income increases. A flexible mortgage might serve you well for years, provided the interest rate remains low. But you can always remortgage to a better loan later.
Which type of mortgage is best for me?
Here are a couple of borrower scenarios. Each case study is looking for the best loan for them, but each needs something a little different.
The cash-strapped first home buyers
Sarah and Ted are aged in their late 20s and currently renting. They’ve saved up £25,000 but because they live in London this isn’t a very big deposit
The best mortgage for this young couple:
- Minimal fees and low rates. They cannot afford massive repayments. Mortgages with minimal upfront or ongoing fees, and those with low interest rates would best for Sarah and Ted.
- A high maximum LTV. They likely haven’t saved a 20% deposit so they’ll need a loan with a maximum LTV of 90 – 95%. An LTV refers to the amount you can borrow as a percentage of the property value.
- Has a guarantor option. Sarah’s parents may be willing to guarantee a portion of their deposit. Some providers offer first-time buyers the chance to secure their mortgage by getting a parent or family member to act as a guarantor.
- Good customer service. This is their first property and first home loan and the process can be daunting. It’ll be good for Sarah and Ted to get some expert advice to help them manage their loan better and be available in times of stress.
The ripped-off homeowner
David is paying off a £200,000 mortgage. He hadn’t looked at his interest rate in a while and was shocked to learn that the rate had jumped well above 4%. His current loan is a basic, no-frills variable loan without many extra features.
David wants to remortgage to a loan that:
- Has a much lower interest rate. This will bring down the monthly repayment and could save David thousands of pounds a year.
- Has low fees. David’s current mortgage has a hefty exit fee. He wants to switch to a mortgage that doesn’t hit him with more costs.
- Takes into account the equity he has accrued. David has more equity in his property now (the balance left after deducting the mortgage), meaning he’s less risky to a potential lender and is eligible for better rates.
Can a mortgage broker help me find the right product for me?
Yes. While comparing for yourself is easy, finding the right mortgage can take a lot of time and energy. Mortgage brokers are professionals who compare loans from a wide panel of lenders. They can find you a product that matches your financial needs and property strategy and also help you with your application.
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