Since the mini-budget in September 2022, mortgage rates have soared and remained high compared to historic ultra-low rates.
So, it's now more important than ever to shop around for the best mortgage or use a broker to find the most competitive deal.
Should you switch your mortgage deal?
If your mortgage deal is coming to an end, and you're concerned about higher rates, it's worth considering a fixed-rate deal, so you know exactly how much more you'll pay.
You want to be looking for a new mortgage around six months before your deal ends and then switching to a lower rate if one is available to guard against any possible rises.
If you’re just getting on the property ladder and have a small deposit, it's worth considering whether you can afford higher than average mortgage payments.
There’s a lot for everyone to think about. It’s time to tap into the mortgage calculator.
How to tell a good mortgage deal from a bad one
If you’re thinking of switching deals or getting your first mortgage, you’ll also need to consider these key points to get the best deal for you.
Early repayment charges (ERC)
If you’re considering switching mortgages before the initial tie-in period ends, early repayment charges could puncture your plans.
They can be anything between 1% to 5% of the remaining balance, and they’re often tiered to be higher in the first year and then drop after that.
But even 1% can burn a big hole in your finances. For example, if you have £200,000 remaining to pay off, that would be a £2,000 fee. If you leave when you’re penalised with a 5% ERC, that would be £10,000.
Sometimes, taking the ERC hit is worth it. For example, if you have a £50,000 mortgage with a 1% ERC, you could pay just £500 to leave.
However, this would only be worth it if you can get a significantly cheaper deal.
The mortgage rate isn’t the only figure to look at as fees can make a huge difference to the amount you’ll end up paying overall.
You may be asked to pay arrangement, valuation and legal fees.
Some lenders won’t charge you a penny, and some will charge you a significant amount (upwards of £1,000), so shopping around is important, especially if you switch again soon and face yet more fees in another year or so.
As mortgages are never easy, a slightly higher interest rate can work out cheaper than paying a high fee - or vice versa.
It depends on how much you’re borrowing, the fee and the rate.
A mortgage broker can take you through the best options and let you know which one is more cost-effective.
Just one other word of caution. If you can, avoid adding the fee to your mortgage qw you’ll end up paying interest on it, and this will add up.
A fixed-rate for a few years is a tempting option, and it’s generally not a bad one.
You’ll have the security of knowing exactly how much you’ll pay every month, and if the rate is competitive, this is security well worth having.
The other thing to bear in mind is your property plans. If you want to move soon, you’ll have no option but to pay an ERC should you find your next dream home within the tie-in period.
Again, it’s all about doing the maths and weighing up the odds of a house move happening any time soon.
To get you on board, some lenders will lure you in with the promise of a cash payment.
If money is feeling tight or you’re a first-time buyer with furniture you need to buy, some extra cash can be tempting.
However, you may end up paying more in interest, meaning the cash incentive isn’t worth it.
On the flip side, the cash could offset some of the fees, and if you’re getting a good deal, this additional sum can pay off.
When scanning deals, try not to see cashback as a freebie.
Instead, it will need to form part of your calculations like this:
- Multiply the monthly payment by the number of months on the deal
- Add on all the fees, including an ERC if it applies to you
- Take off the cashback
Think about your situation
The best mortgage deals may favour people with money to spare or those with a good credit score.
However, if you are self-employed or have a bad credit history, it's worth talking to a mortgage broker who can find the best deal and a specialist lender for your circumstances.
Is it worth getting a mortgage broker?
You don’t need a mortgage broker to find a good deal – but it can help if you do.
They’ll do the sums for you and show you which deal is the most cost-effective.
If you go with an independent mortgage broker who has access to the whole market, they can hunt out the best deals or ones that suit your situation, such as the ability to port your mortgage and low ERCs.
Unbiased can quickly connect you with a qualified mortgage broker using the button below.