The days of little checks and easy mortgages may well be in the past (self-cert mortgages, anyone?), but that does not mean that you cannot get a good deal as a borrower. Read on to find out how to get the best remortgage deal in three steps.
Make yourself attractive (to the lender of course)
There are some simple steps you can undertake to make yourself a more attractive proposition to the lender and remove anything that will put them off. Ensure you are on the electoral role and everything is in order with your address. Lenders check your name along your address – so it is worth getting yourself on it.
Check your credit file with the major credit agencies like Equifax, Experian or CallCredit and make sure everything is in order. Challenge anything that appears to be wrong, or any financial links to other people that are not correct.
The other way to build up your credit history is to take out a credit card and use it – make sure you pay it back within the stipulated time. There are credit cards designed to improve your credit rating. These are secure credit cards versus the standard insecured credit cards and using and paying back on time with these will boost your credit score. Check out Money.co.uk’s listing for credit building cards (https://www.money.co.uk/credit-cards/credit-building-credit-cards). Lenders like people with a history of borrowing money and paying it back on time. Other things which may not necessarily be within your control but makes you more attractive as a borrower is the aspect of stability – that includes being in the same job for the last 6 months to a year prior to application, having lived in the same home for six months and a steady income shown on your bank statements.
Do the sums
In order to get a mortgage, you need to work out your mortgage amount and that is based on your LTV (or loan-to-value, which is the amount you are borrowing as a % of the value of the property). The lower the LTV, the better your chances of securing a good deal. The lowest mortgage rates typically are for 60% LTV or people whose mortgages are not more than 60% of their house value. If you are not able to get to that elusive 60% but are somewhere between 75% and 60% – don’t worry. You should still be able to secure a good mortgage rate. Anything over 75% means you are less likely to get the better rates.
Mortgage rates are influenced by factors other than your credit score, affordability and LTV. They are influenced by the kind of mortgage you are going for, whether it is a fixed rate or variable (read more about these two types of mortgages here) or whether you are looking at a shorter term of a longer term within a fixed scenario. Things that will affect whether you go for fixed or variable include taking into account whether you would save money by changing the deal at the end of two years (in case of a two year fixed) or whether you prefert he security that comes from a five year fixed. Lenders also make money from the fees they attach to mortgages, so do factor that in when you are weighing up the various options and calculating the costs.
The best mortgage is not always the one with the cheapest rate as with the arrival of super-fee mortgages, which offer low rates in exchange for a big arrangement fee means that those with smaller loans could end up out of pocket by opting for a bargain rate. The general rule if the bigger your mortgage the better a high fee/ low rate deal will be – but look out for percentage of loan based fees as they will be more expensive for larger loans. The other things to watch out for charges at the end of the mortgage, costs for getting your property valued and the legal costs of the purchase. Don’t forget to work out your other financial commitments and outgoings including car loans, living expenses, childcare and even mobile and gym costs – all of these will be factored in when the lender does the affordability checks. They will also apply a “stress test”, i.e would the mortgage payment still be affordable in event of an increase in rate.
Under new regulations, almost all mortgages need to be taken out with financial advice.
This can be from a bank adviser who will only recommend their employer’s own products, in which case doing your own research across the whole of the market is key. The alternative is to use a mortgage broker who has access to a wider range of products than you and exclusive rates.
Using a broker may be beneficial as they would help you through the application process, have a good understanding of different lender requirements and can match a borrower based on their financial circumstances to the “right” lenders. If deciding to go with a broker, it is worth finding how and what they charge at the start of the process also that they are listed on the FCA register. Prior to this, it is worth researching on the whole market yourself as some banks do not worth through brokers.
Another decision is whether to go for a fixed or a tracker mortgage, or one that follows another rate, usually the Bank of England’s base rate.
To sum up, getting a mortgage requires planning, patience and a step-by-step approach to what the options are and which ones are suitable for you.