10 Mortgage Advice Tips

Here are the top 10 tips on getting the best deal on your mortgage.

The mortgage market has been transformed over the past 12 months. The total number of products has fallen by more than 23,000, while those lenders prepared to lend more than 90 per cent of a property’s value has plummeted. No longer are multiples of five or six times’ income easily available, while borrowers with poor credit records are finding it much more difficult to get a loan.

But do not despair. “Although the market has changed substantially since the onset of the credit crunch, it is still possible to get a mortgage, and there remain thousands of deals out there,” says David Hollingworth of London & Country, the mortgage broker.

1. A large deposit goes a long way
“One of the biggest changes is that the keenest rates are now available only to those with a large deposit, typically of more than 25 per cent,” Hollingwoth says. “Most lenders now tier rates are those available up to 90 per cent will in most cases carry a significant premium, so the main message for any borrower keen to improve the choice of product available is to put down as much as possible.”

2. Deposits are important for remortgages, too.
Due to falls in house prices, you may find that when you come to remortgage, you have slipped into a different loan-to-value (LTV) band because the value of your property is lower. “If you have savings available, you could use them to reduce the LTV in order to get better mortgage rates,” says Melanie Bien of Savills Private Finance. “It is important not to commit funds if there is a chance you might need them again in the short term however, as on most mortgages you will not be able to draw down the money again.”

3. A clean credit record is key
The sub prime market has been worst affected by the credit crunch, and as a result, anyone who has a poor credit record will struggle to find competitive deals. “Rates are significantly higher, and those with serious credit problems will find products hard to come by,” Hollingworth says.

“Check your credit record through the various credit reference agencies and make sure that there is nothing adverse on your record that should not be there.” Register to vote – absence from the electoral roll is one factor which will damage your credit file.

4. Speak to a broker
If you are having problems finding a loan, talk to a mortgage broker. “If your case is complicated – perhaps you have a county court judgement against you or have missed payments in the past, if you are self employed or have a property of unusual construction – a mortgage broker will be able to help point you towards a lender who is equipped to deal with your situation,” Bien says.

5. If you crave security, go for a fixed rate…
“If you need certainty to help with budgeting, opt for a fixed rate,” Bien says. “Rates have fallen on fixes in recent weeks – although fixes are still not as competitively-priced as trackers in the majority of cases.”

6. Plan for the long term
“With it looking increasingly likely that it will take another couple of years for the market to recover, borrowers may be better placed to opt against short-term fixed rate mortgages,” says Jonathan Cornell of Hamptons Mortgages. “The rising costs of short-term fixed rate mortgages means that the average arrangement fee on a two-year deal is £1,168, with some as high as £2,000. Some long-term deals are priced more competitively – and homeowners can avoid the hassle of having to remortgage every two years.”

7. But if you can take a risk, trackers look best
“Any borrower who does not require the absolute security of a fixed rate mortgage would simply be crackers not to take a cracker at the moment,” says Drew Wotherspoon of Charcol, another broker. The reason for this is that, although inflation is high at the moment, and is set to rise further, it is forecast to all sharply as the economy slows. “As a result, it is highly probably that the bank base rate will fall sharply in 2009,” Wotherspoon says.

8. Pay attention to the SVR…
Borrowers are now spending longer on their lender’s standard variable (SVR) rate than they used to do, research from Nationwide shows. Unless you are moving seamlessly from fixed rate deal to fixed rate deal, the SVR becomes important – and there is significant variation between lenders: for example, Nationwide’s SVR is currently 6.49 per cent, while Halifax charges 7 per cent and Abbey 7.90 per cent.

9. …and to arrangement fees
While fixed rates have been coming down recently, a number of lenders have been raising arrangement fees at the same time in order to protect their margins. Moneyfacts reports that in the month to August 6, the average two-year fixed rate fell from 7.08 per cent to 6.9 per cent, however, at the same time the average arrangement fee rose by £100. “Borrowers should consider the overall combination of the headline rate, fee and the lender’s SVR,” says Martyn Dyson, head of mortgages at Nationwide.

10. Sometimes a higher fee is a better bet
If you are struggling to get a good rate, it might be worth paying a higher fee., “Some lenders offer a choice of paying a higher arrangement fee to get a lower mortgage rate,” says Ray Boulger of Charcol. “The fee is added to the mortgage – but in some cases it is better to have a slightly bigger mortgage than one with a higher rate that you cannot afford.”