The key to getting the best deal on your mortgage – and that means the most sensible option, as well as the cheapest – is being armed with as much information as possible… so be prepared.
Different types of mortgages
When it comes to choosing a mortgage your choice is essentially between a variable rate – one that can change – and a fixed rate, which will not change for a certain period of time.
Tracker and variable rates
There are typically two types of variable rate mortgage: trackers and discount / standard variable rates.
Tracker mortgages mirror the movements of the base rate, the benchmark interest rate set by the Bank Of England. They will rise or fall in line with changes in base rate, usually at a level above it.
Standard variable rates (SVRs) are set by lenders and each lender has it’s own one. These are usually influenced by the base rate but can change independently of it and vary quite substantially. Banks and building societies used to widely offer mortgages set at their SVR but these are much less common nowadays, however, borrowers will typically move to an SVR once an initial deal period on a mortgage ends. Once on it usually there are no major penalties for paying up early.
A discount rate mortgage will follow moves in a lender’s SVR. Unlike a tracker it can therefore move independently of base rate.
With a fixed rate your interest rate and thus payments will be set for a period of time. This could be for two, three years, or five, or even up to 10 years. The rate you pay will not change during this time, but will revert back to the lenders standard variable rate after it finishes. This is often a good time to look for a better deal.
Government backed Help to Buy
Help to Buy comes in two parts – a deposit-boosting interest-free loan for those buying a new-build home costing up to £600,000 and a support scheme to encourage mortgage lenders to take on those with small deposits.
The first part of Help to Buy offers to boost small deposits, by delivering an interest-free loan of up to 20 per cent of a property’s value, if the buyer also puts down at least 5 per cent. The loan is interest-free for five years, after which a low rate of interest starting at 1.75 per cent and rising gradually each year is triggered.
When the property is sold the borrower repays the equivalent share of their property’s sale value. For example, if their initial loan was 20 per cent of the purchase price, they must repay 20 per cent of the sale price.
The second part of Help to Buy offers banks and building societies a guarantee against losses on up to 20 per cent of a property’s value, if a home buyer puts down at least a 5 per cent deposit. The aim is to drag mortgage rates on 5 per cent and 10 per cent mortgages down closer to the better deals offered to those with big deposits.
It allows buyers to purchase any property worth up to £600,000, put down a 5 per cent deposit and have the taxpayer underwrite a further 15 per cent – it has been successful in pushing small deposit mortgage rates down, but some of the best deals remain non-Help to Buy loans.
How long does the morgage process take?
Depending on your lender and the type of mortgage you are getting, you should expect the mortgage offer within two to four weeks, provided you have supplied all the relevant information.
When you apply for a mortgage, you will receive two documents – ‘Keyfacts about our mortgage services’ and ‘Keyfacts about this mortgage’.
These will not look like the most exciting things you have ever seen in your life, but it is vital that you read them. A mortgage is probably the biggest financial commitment you will ever make, so spend some time checking the details and the small print.