A mortgage is likely to be the biggest financial commitment of your life, so getting the right loan is key and could save you a considerable sum in the long run. Here’s how to ensure you get the most competitive rate for you…
Tip 1: Make sure your credit history is good
This means making loan payments on time and ensuring you haven’t missed any payments. However, don’t get too hung up on your credit score. Credit reference agencies like Experian and Equifax will provide you with a credit score, but lenders will independently measure someone’s credit worthiness based on their own scorecard. ‘The credit score given by the likes of Experian and Equifax are simply their own interpretation of what your credit score is likely to be, so they’re indicative only,’ says MB Associates’ Sales Manager Phil Leivesley. In other words, don’t get too hung up on your credit score. Make your loan payments on time and show that you can be a responsible borrower and you should be fine.
Tip 2: Save up for a larger deposit
The higher your deposit, the more options you have for a competitive mortgage loan. In general, lenders offer the best rates to those with a 40 per cent deposit or more, but for some people that may not be realistic. However, saving up a 20 or 25 per cent deposit will naturally attract a better interest rate than a deposit of 10 or 15 per cent.
Tip 3: Use a reputable broker
A good broker will shop around on your behalf and look for the most attractive mortgage loan for you. They know what’s going on in the market and can react quickly on your behalf if any new deals become available. They also have access to mortgage loans that may only be available for a short period of time, or not available to the general public directly.
Tip 4: Get your paperwork in order
You’ll want your broker to get you the best deal, and sometimes that means reacting swiftly to a mortgage rate that comes onto the market for a limited amount of time. Make sure you have all of your paperwork ready for when they need it. If you’re employed, you’ll need three months’ worth of bank statements and payslips, as well as details of any loans or credit card balances. If you’re self-employed, you’ll need the last two years’ worth of accounts and tax returns. Make sure you’re on the electoral roll and also have your passport and driving licence ready with your current address on. You’ll also need your latest P60 form and proof of address from a utility bill.
Tip 5: Be prepared to remortgage
Once you’ve got your mortgage, don’t expect to stick with the same loan for the duration of the term. For example, if you have a fixed-rate loan for two years and will be paying a higher rate at the end of that term, be prepared to switch. Give your broker plenty of time to shop around and find the right deal for you – ideally, six months’ notice would be preferable so that they can get everything organised for you in plenty of time.
Incidentally, even if you are not coming to the end of your fixed-rate mortgage term, you may still be able to get a better deal by switching to a new mortgage. Even if you have an early repayment charge, it could still be worth switching as there are some competitive rates available. A good broker can advise you on this.
Tip 6: Keep an open mind
The mortgage market is not always as simple as it looks. Some mortgage loans have arrangement fees, also known as product fees, which are payable to the lender. They can be up to £2000. You can usually add arrangement fees to your mortgage balance, but this will mean you’ll pay interest on them. ‘Some interest rates are ultra-cheap but are accompanied with higher fees, and sometimes an alternative product that doesn’t have such a low-interest rate but has lower or no arrangement fees and could be cheaper overall,’ says Phil. ‘A good broker can help you navigate through this.’