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When compiling our best buy tables we choose the best mortgage rates from across the UK market, including deals that are exclusive to us. It's important to remember that the best mortgage deals are not necessarily about getting the lowest mortgage rate possible, you also need to take into account all the fees and charges associated in setting up your new mortgage deal.
By choosing L&C to find your next mortgage deal our advisers will research the market for you, looking at criteria, set up fees and the rate to get the best mortgage deal for your circumstances, saving you time and effort. Our best buy tables below show you the pick of the mortgage deals currently available, both fixed rates and variable rates, whether you are looking to purchase or remortgage.
If you need to take out a mortgage, the huge choice of mortgage deals available combined with lots of confusing jargon can be enough to make anyone nervous. After all, this is likely to be one of the biggest financial decisions of your life, so you’ll want to get it right. That’s why it’s a good idea to seek expert help so that you can find the best mortgage rates or deals to suit your individual needs. Here at L&C, the UK’s leading mortgage broker, we can guide you through the process from start to finish and explain all the different options available to you, making finding a mortgage not so daunting after all.
There are several different kinds of mortgage to choose from. The best mortgage deal for you will depend on whether you want your monthly payments to be the same every month, or whether you’re happy for payments to go up and down over time.
Fixed: With a fixed rate mortgage, you sign up to a set rate for a certain period of time, usually ranging from two to five years, although it is possible to lock into longer term fixed rate deals too. The rate won’t change during the term of the deal regardless of what happens to the Bank of England base rate, so you’ll have peace of mind that your payments won’t change. Fixed rate mortgages usually appeal to homebuyers who want certainty when budgeting.
Tracker: This type of mortgage, as its name suggests, usually tracks the Bank of England base rate, plus a set percentage. For example, if you chose a mortgage deal which tracked the base rate plus another 2%, given the base rate is currently 0.25%, this would mean your payable mortgage rate would be 2.25%. The main advantage of a tracker deal is that when rates are falling you will benefit, but if and when rates start to rise, so will the cost of your mortgage payments.
Offset: With an offset mortgage, you can offset any savings you have against the amount you owe on your mortgage, reducing the amount of interest you pay. So, if you have a £150,000 mortgage and £30,000 in savings, you can offset these savings against your mortgage, meaning you only pay interest on £120,000 of your mortgage. You will still have access to your savings whenever you want. Rates on offset mortgages can be slightly higher than on standard mortgages.
Capped: A capped rate mortgage will have a variable rate, so your payments can go up or down, but the rate will never exceed a certain limit, or cap. This type of mortgage may appeal to you if you think mortgage rates could have further to fall, but want some protection that there is a ceiling beyond which your monthly payments can’t rise.
Discounted: This type of mortgage offers you a discount off the lender’s standard variable rate for a set period of time. For example, if a lender has a variable rate of 4.5%, they might offer you a discount of 2.25% off this rate for two years or longer, giving you a payable rate of 2.25%. Discounted mortgage rates are variable, so if your lender raises or lowers their standard variable rate, your monthly payments will go up or down too.
Remember that with any of the types of mortgage deal outlined above, there will usually be a penalty to pay if you want to get out of a deal early.
The right type of mortgage for you will depend on your individual circumstances and requirements, and that’s where we at L&C can help, talking you through all the options that are available to you.
For example, if you only have a small deposit to put down when buying a home, your mortgage choices will be more limited than if you have a larger deposit. The best mortgage rates tend to be available to those with larger deposits as this means less risk for the lender. Mortgage rates offered to those with smaller deposits will also be higher than those offered to homebuyers with big deposits, but we can help you find the best possible deal to suit your needs.
Your mortgage options may also be restricted if you are self-employed. Typically, lenders will want to see at least three years of accounts if you work for yourself. If you are employed, but have only worked for your employer for a short period of time, this can also have an impact on the number of mortgages that might be available to you.
The type of mortgage deal you can go for may also depend on the type of property you are buying. Certain lenders specialise in offering mortgages on properties that might not be considered ‘standard’ such as properties above commercial premises or in high-rise blocks.
Remember too that lenders will scrutinise your credit history before agreeing to offer you a mortgage, so it’s a good idea to check your credit score before you start applying. This will enable you to see whether there are any errors on your credit report, as well as giving you an idea of how likely you are to be expected. The higher your score, the better your chances will be, but if you’ve had County Court Judgements against you in the past, or have missed repayments, lenders are less likely to accept your application. Even not being registered to vote at your address can have an impact on your credit score, so check you are on the electoral roll.
Even some of the best mortgage deals will have set-up fees, and it’s vital to check what these are before signing up to a particular deal, as they can add substantially to the overall cost of your mortgage.
There are usually two types of fee which are charged, an arrangement fee and a booking fee. The booking fee is basically a charge for you to reserve the particular deal you want. This is a non-refundable fee, so if you don’t end up taking out the mortgage, you won’t get your money back.
The arrangement fee, which is charged by a lender to arrange the mortgage on your behalf, is only charged when your mortgage completes, so if for any reason you don’t end up taking the mortgage, you won’t have to pay it.
In some cases, it may be better to opt for a deal with a slightly higher mortgage rate and lower fees than a mortgage with a very high fee but lower rate, particularly if you are only applying for a small mortgage. If you are taking out a large mortgage, however, then it might make more sense for you to go for a deal with a larger fee and a lower rate. At L&C we can do the sums for you to help you work out which option is likely to be most cost-effective for you.
There are several other things you need to think about when choosing a mortgage.
How long do you want your mortgage to be? Remember that the shorter the mortgage term you choose, the less interest you will pay overall and the faster you will pay off what you owe, although your monthly payments will be more expensive than if you opt for a longer term. When remortgaging, make sure you factor in how long you have already had your mortgage and reduce your term by that length of time. For example, if you originally took out a 25-year mortgage and have just come to the end of a five-year fixed rate mortgage deal, when you remortgage you should do so over a 20-year term, as you’ve already been paying off your mortgage for five years.
If you are signing up for a fixed, tracker, capped or discounted mortgage deal, think about how long you want to tie yourself in for. Mortgage deals will usually impose early repayment charges (ERCs) if you leave them before they finish, so if you think a move could be on the cards in a couple of years it probably makes more sense to lock into a two-year deal rather than a five-year one.
Although most mortgage deals are portable these days, you will still have to go through the application process again to move your mortgage across to a new property, and if the amount you are borrowing is increasing, you may have to accept that part of your mortgage will be on a different rate.
When you choose a repayment mortgage, your monthly payments go towards paying off the interest you owe and the capital you have borrowed. If you choose an interest-only mortgage, however, you only pay off the interest you owe each month, and none of the capital. Instead, you are supposed to pay into a savings plan each month, with the aim that this money can be used to pay off your mortgage at the end of the term.
Very few lenders now offer interest-only mortgages because of fears that homebuyers won’t set up plans to repay them, so you will usually only be offered a repayment mortgage. This means that you have peace of mind your mortgage will definitely be repaid in full at the end of the term. If you are set on going for an interest-only mortgage, you will usually only be able to get one if you have a very large deposit to put down if you are buying, or if you have a significant amount of equity in your property if you are remortgaging.
Interest rates are currently at record lows, so there has never been a better time to get a mortgage, although many homebuyers and those who already own property are naturally worried about rates increasing in future.
The Bank of England first cut the base rate to 0.5% in March 2009, at the peak of the global financial crisis which started in 2007. Since then, homebuyers and those looking to remortgage have enjoyed exceptionally low mortgage rates – a far cry from 1979 when the base rate peaked at an eye-watering 17%.
Rates dropped even lower in August 2016, when they were cut to 0.25% by the Monetary Policy Committee (MPC) following the EU referendum result. The MPC meets monthly to decide whether the base rate will move or not. Its aim is to keep inflation, or the cost of living, to a 2% target as well as to ensure the economy remains financially stable. The August cut was part of a major stimulus package announced by the Bank of England to prevent the economy destabilising following the UK’s decision to leave the EU.
But where will interest rates go next? Many experts believe that rates will remain low for the foreseeable future, with some claiming that we won’t see any increase until 2020 at the earliest. Others believe that rates could even be cut again as Britain gradually negotiates its exit from Europe.
Bear in mind however, that given mortgage rates are already currently so low that even if interest rates do reduce further, lenders may not make further cuts to their rates in response. Following August’s cut, several lenders made no change to their standard variable rates, although the majority passed on some or all of the quarter of a percentage point reduction. Even if your lender has passed on the rate cut in full, don’t be tempted to stay on the standard variable rate as you may well be able to do much better by remortgaging to a different mortgage deal.
Of course, no-one really knows exactly what the future holds for interest rates, but what is certain is that we should make the most of rock-bottom mortgage rates while they are available. That said, it’s really important you are prepared for the financial consequences of any potential rise, however far away that might be. When choosing a mortgage, you will therefore need to consider whether you would be able to afford higher monthly mortgage payments when interest rates do go up. This will also influence the type of mortgage you choose. For example, if stability is your biggest priority and you’d find higher payments a stretch, you may want to lock into a longer term fixed rate, but if you’re confident rates will remain very low for the next few years, you might feel more confident about opting for a variable rate deal instead.
Comparing mortgages isn’t easy. Sometimes deals look attractive because they have a low initial rate, but you also need to take into account any fees that come with the mortgage deal. We recommend annual cost as the best way to see which mortgage deal offers the best value for the size of mortgage you’re looking to take.
This is how we calculate the annual cost:
By comparing mortgage deals looking at annual cost you can see which one would be cheapest for you taking into account fees as well as the interest rate. The annual cost only applies to the initial deal as its always best to consider switching once the initial deal is over to see if you could save money.