Money: Why mortgage borrowing needn’t give you the blues

The Institute for Public Policy Research (IPPR) said if current UK trends continue, household debt is set to increase in real terms by 2027 from £70,400 to £85,700. (Gareth Fuller/PA Wire)
(Gareth Fuller/PA Wire)

FINDING the right mortgage deal isn’t always easy – and new research suggests many borrowers are getting it wrong.

Three in 10 (30%) customers fail to find the cheapest mortgage, according to the Financial Conduct Authority, which is looking at ways to make it easier for borrowers to shop around.

Here are some possible factors to consider – and pitfalls to avoid – when setting up your mortgage:

Weigh up whether you want to go for a fixed or variable rate

Fixed rates give borrowers certainty over what their payments will be for a certain period – but if you’re taking out a longer-term fixed deal, you’ll also need to be sure that you’re able to lock yourself in for that length of time.

Make the most of online tools

There are tools out there which can help you see what’s available quickly and easily – for example, MoneySavingExpert.com has a best buys tool (moneysavingexpert.com/mortgages/best-buys/).

Don’t just be seduced by a low rate

Always consider the whole package when weighing up a mortgage deal, not just the rate, to work out the overall cost. Some mortgages will come with fees, while some may have perks such as cashback deals which may be worth considering.

Bear in mind mortgage rates have already been edging up

While the Bank of England base rate remained at 0.5% in May, mortgage rates have already been edging up a bit recently. According to Moneyfacts, 27 providers increased their rates in April – some doing so more than twice.

Charlotte Nelson, a Moneyfacts finance expert, says: “It is important for borrowers to note that there does not need to be a base rate rise for mortgage rates to increase.” Consider brokers carefully

Mortgage brokers have their fingers on the pulse when it comes to scouring the market for a good deal, and they understand key details about lenders’ criteria.

But choosing the right broker for you could be vital. One question to ask could be whether they look at the whole of the market or make a selection from a panel of lenders. You may also want to consider recommendations from friends if they have used someone who was particularly helpful.

Find out what re-mortgage deals are available

If your existing mortgage deal is coming to an end soon, make sure you don’t just end up sitting on a higher rate by default.

Research from MoneySuperMarket found one in six (16.6%) people on a fixed-rate mortgage claimed to have no idea what would happen to their repayments once their fixed term period came to an end.

Meanwhile, online mortgage adviser Dynamo and mortgage broker Countrywide have tracked the proportion of mortgage borrowers who ended up on their lender’s standard variable rate after their initial introductory deal came to an end.

Seb McDermott, chief executive at Dynamo, says: “Far too many people are not switching deals in time. Last year, one in three mortgage holders ended up on their lender’s SVR rate for an average of 42 days after their existing deal expired. This can prove costly – to the tune of nearly £62 a week.”

Don’t forget all the extras

Insurer LV= has found 27% of home owners didn’t spend any time researching which buildings insurance would be best for them, meaning they might not have had the right cover in place.

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