How to get the best deal on your mortgage

Navigating the mortgage minefield is no easy task [PA Photo/thinkstockphotos]

Navigating the mortgage minefield is no easy task [PA Photo/thinkstockphotos] - Credit: PA

Lenders have been raising their fixed mortgage rates in recent weeks – but it’s still possible to get a good deal. Vicky Shaw found out how...

What’s happening?

Mortgage rates being offered by lenders have crept up in recent weeks, with dozens of providers upping their rates between mid-September and mid-October.

What’s the background?

There have been hints that the Bank of England’s base rate could soon edge up from its low of 0.25 per cent. Charlotte Nelson, a spokeswoman for financial website, says that, amid the speculation about a possible base rate rise, swap rates, which lenders use to price their loans, have been heading upwards. She says: “Swap rates have started to increase, which has caused lenders to rethink their offerings.”

Who’s affected?

David Hollingworth, from broker London & Country Mortgages, says several larger and smaller lenders have been increasing the rates they are offering, with some ultra-low fixed-rates being pulled off the market altogether. “This acts as a reminder that those rates won’t stay that low forever and actually they’re already on the move,” he explains. The rate increases have also been made across large chunks of lenders’ ranges, he says, so people with bigger and smaller deposits could be affected. Hollingworth adds: “Right the way through the loan-to-value range now, from the lowest of the low right the way up, you’re seeing increases in fixed rates.”

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Does that mean the deals on offer are now quite poor?

By historic standards, the mortgage rates on offer are still very low, so there are still many good deals out there. Hollingworth says: “The rates are still very, very low,” but “the very lowest rates are rapidly disappearing. “I think this is something that will trigger people to take action if they haven’t already, because they are going to miss out on the very lowest rates potentially,” he says, “but there’s still a lot of competitive rates out there, so it’s not too late if they are able to get their skates on.”

What’s the best length of time to fix my mortgage rate for?

This will depend on individual circumstances and how far into the future you feel comfortable locking yourself into a deal for. A longer term fixed deal means you have certainty over your mortgage payments for a longer period, but a shorter term deal may have a lower rate, and will also free the borrower up more quickly if their circumstances change in the future - so the pros and cons need to be carefully weighed up.

Shorter-term deals may last for a couple of years, or longer-term deals may last for five, or even 10 years if you feel happy locking yourself into a deal for the next decade. Hollingworth says that a possible base rate on the horizon could mean more people locking themselves into fixed-rate deals to insulate themselves from potential interest rate rises.

He says: “The question will be whether they go for the very cheapest rates, which are the shorter-term fixes, or consider longer-term.” For borrowers wanting longer-term certainty and weighing up whether to go for a five or 10-year deal, Hollingworth suggests a possible compromise could be a seven-year fix, with Coventry Building Society having brought out these deals.

What else should borrowers consider?

When choosing the right mortgage, Hollingworth says it’s important to factor in any fees as well as incentives, such as cashback or free legal packages, as well as the rate. He adds that if people are nearing the end of their current mortgage deal, some lenders will make mortgage offers which are valid for up to six months, so they could consider trying to lock into a deal now which they may not start for half a year.