The Bank of England base rate has gone up to one per cent, and mortgage rates have risen too. You may be wondering if you can still get a good deal on your mortgage. Fortunately, there are things you can do to improve your chances…
The Bank of England’s base rate has increased four times since December 2021, with the rate most recently increasing from 0.75 to one per cent on 5 May. What’s more, it’s anticipated there will be further rate rises.
According to the website, MoneySavingExpert, fixed rates for mortgages have increased rapidly since the start of the year. ‘Lenders have been receiving a remarkable number of applications of late and have spent the last few months withdrawing their products with very little notice and increasing the pricing to try to slow demand,’ says MB Associates’ Sales Manager, Phil Leivesley. ‘The problem is that all lenders are doing this, and as one lender withdraws, the lender offering what was the second cheapest product then becomes inundated. It’s like a never-ending line of dominos pushing each other over. This is pushing up pricing higher than perhaps it should be.’
However, to put things in perspective, mortgage interest rates have been historically low for some time now. It has been cheap to borrow for a long time, and there are still some attractive deals around.
The key is to shop around and have your paperwork prepared. Here’s how you can get the best deal on your mortgage.
Have a substantial deposit
While this may be a challenge if you’re a first-time buyer, it’s advisable to save for the highest deposit you can manage. The higher your deposit, the better placed you will be to obtain a competitive interest rate on your mortgage. Lenders tend to offer the best rates to those who can put down a 40 per cent deposit or more. Failing that, if you can put down 20 to 25 per cent you should still be able to secure a good deal. That said, you may want to keep some savings back in reserve for emergencies and unexpected costs. Make sure you don’t leave yourself short.
Get your credit history in check
Make sure you haven’t missed any loan payments and your credit card bills are paid on time as this shows you are a responsible borrower. If you are in the process of disputing a bill, even if you know it’s incorrect, be aware that not paying it while you argue with your supplier could have a negative impact on your mortgage application.
Our Sales Manager, Phil Leivesley, has seen clients have their credit rating affected when disputing an overcharge on something as minor as a mobile phone bill. Even though it may go against your principles to pay what you technically don’t owe, you may wish to pay the bill for the time being in order to get your mortgage application processed, so that your credit history isn’t in jeopardy. Then you can go back to your supplier at a later date and dispute the bill.
Use an experienced mortgage broker
A good mortgage broker will be able to search the whole of the market for you and may have access to mortgage rates not currently available directly to consumers. You could save a considerable sum in the long term. They can also offer bespoke advice. They will take your personal circumstances into account when recommending a mortgage for you and should always act in your best interests.
Get your paperwork ready
Ensure you have all of your paperwork ready before you apply for a mortgage or talk to a broker. As Phil mentioned, lenders are currently withdrawing certain mortgage products with very little notice, so don’t risk securing an attractive rate and then discovering it has been withdrawn before you’ve had a chance to submit your application. Have your paperwork ready so that you’re in a position to move swiftly. Make sure you have the last three months’ worth of bank statements, three months’ worth of payslips and proof of ID (passport and driver’s licence) ready to hand over. If you’re self-employed, you’ll need two years’ worth of audited accounts and company tax returns.
Be aware of fees
Lenders can charge fees that can be known as arrangement, booking or product fees. They vary depending on the lender but can be anywhere from £1000 to £2000. Other lenders will charge a percentage of the amount you intend to borrow. Not all lenders charge fees, but it’s important to know whether they apply before you go ahead. Some lenders will also charge you for doing a property valuation (which is for their benefit rather than yours) to ensure there are no issues with the property and it is worth the purchase price. They may expect you to pay for this valuation, although it varies depending on the lender.
Make sure you won’t be affected by early repayment charges
Some lenders will charge an early repayment fee if you want to switch your mortgage before your fixed term comes to an end. This can be very expensive. Check your original mortgage offer document, as this will confirm the early repayment charge that applies. If you intend to have your mortgage in place for the next two to five years, then a two or five-year fixed-rate deal may be suitable for you. However, make sure you know what the early repayment charge is in case your circumstances change.
Time it right when remortgaging
If you’re thinking of remortgaging, the best time to do it is usually when the fixed term is about to come to an end. (There are some exceptions to this, but you will usually have to pay an early repayment penalty as mentioned). However, don’t leave it too close to the end of the term. Give your broker at least three to six months to shop around and find the best deal for you.