Compare the best UK rates for mortgages

Affordability

This may sound obvious, but when comparing your mortgage make sure you can afford the repayments, remember that the mortgage payment isn’t the only bill each month, you need to consider and council tax, paid TV subscriptions, mobile phone contracts, broadband, gas and electric, water, TV license and any maintenance if you are a leaseholder. Plus you will need to add any food and transport costs plus any living expenses. If things are looking tight, you could look at a mortgage over a longer period, some offer up to 35 years now, and that can save you a lot of money per month, but remember it will take you longer to pay off than a shorter mortgage so the interest repayment will be higher.

LTV

Loan to Value, the lower the LTV, the lower your repayments will be. The loan to value is the percentage of your loan (mortgage) compared to value of the property. The property value is based on the mortgage companies assessment of the property, not what you are willing to pay for it, they will typically have a online system that they can use to estimate the property value but they may also send out an expert to value the property. Most mortgage providers cap the LTV at 90% although some schemes like the Help to Buy can offer 95% LTV mortgages.

When you compare your mortgage it is worth speaking to the advisor and seeing what the difference in your repayments if you increase the LTV by a few percentage points, the majority of the time you will not get a preferential interest rate if your LTV is 81% compared to 83%, the 2% difference doesn’t bring down the overall interest rate, so would having the extra 2% in your pocket help you when you move for bills such as stamp duty or renovating the property?

Interest rate

The interest rate will depend on the LTV, generally, those with a higher deposit (or a lower loan to property value), will receive better rates. The interest rates are linked to the Bank of England’s base rate, but the mortgage company does not need to pass on any savings if the base rate goes down, and likewise, they don’t have to increase rates when the base rate increases. You will usually get a lower interest rate at the beginning of the mortgage but you will have to pay a fee if you repay your mortgage early during these lower rates period.

There are 2 main types of interest rates to compare on a mortgage; fixed rate mortgage and variable rate mortgage.

A fixed rate mortgage offers a fixed interest rate for a set period of time (typically 2, 3 or 5 years although 10 years is becoming available too), your repayments will not change during this fixed period regardless of what is happening in the wider economy. If you are on a fixed 2% interest mortgage for 5 years and the Bank of England increased it’s base interest rate to 10% you would still pay the 2% interest as agreed, but when your fixed period came to an end, you will have to pay the agreed interest rate which is the banks interest rate which is linked to the Bank of England’s base rate.

A variable mortgage offers no guarantees on what your repayments would be from one month to the next because your interest rate can go up or down depending on the UK economy and led by the Bank of England’s base rate. The mortgage lenders have been historically very quick to pass on rate rises, but a little bit slower to pass on any savings. A variable rate mortgage may look cheaper when you compare, but you must do your calculations to work out what your repayment would be if the interest rate went up 0.5% or 0.75% which it is thought it could do in 2020 or 2021.

If you are considering a fixed rate mortgage and you are offered different lengths, think about what your life stage could be when the fixed rate comes to an end and you will need to remortgage, if you are buying a house because you want to start a family will the household income still be the same when you come to remortgage? This can make the affordability checks more difficult with the lenders if the household income is lower so it could be wise to take a longer fixed period, but then you need to be conscious that you might want to move house in 3 or 4 years time but you have a 5 year fixed mortgage so you will need to check if you can port your mortgage to the new property or will you have to pay any early repayment charges?

Terms

How long should you get the mortgage for? Generally speaking, the shorter the term, the better it is because you are paying less interest and your mortgage is paid off quicker. However, check that you can afford the higher repayments compared to a mortgage 1, 2, or 5 years longer. A typical mortgage is for 20 – 25 years, but now a days it is possible to get a 35 year mortgage to allow manageable repayments on the property.