Between low-interest rates, a stamp duty holiday and a brand new 95% mortgage guarantee scheme, there’s rarely been a better time to buy a property.
But with hundreds of deals available on the market, it can be difficult for potential homeowners to find the best mortgage rate that’s for them.
There are several factors you need to consider, including how long the repayments will be spread over (the mortgage term), what type of mortgage you will get (fixed rate or variable/tracker), and any penalties for repaying your mortgage early.
The rate you will be offered usually depends on how big your deposit is, which is used to calculate your Loan to Value (LTV) ratio. For instance, if you pay a 10% deposit and borrow the rest, your LTV will be 90%.
New deals are popping up all the time, so it’s always best to shop around before you sign on the dotted line just in case you find a better rate.
Five things you should think about when comparing mortgage rates
The Loan to Value (LTV) – Usually, the lower your LTV (and the higher your deposit) the less interest you will pay. The Money Advice Service says that the cheapest rates are typically available for people with a 40% deposit.
The mortgage term – This is the number of years your mortgage repayments will be spread across. The typical length is 25 years, but they can be much shorter or longer. Longer mortgages mean lower monthly repayments, but you will pay usually more interest overall.
Fixed rate vs. variable / tracker mortgages – A fixed-rate mortgage is where you agree to pay a set amount of interest for a specific period, typically between two and five years. This gives you certainty, but they’re often more expensive. You’re locked in, which means that you’re protected from rate rises, but don’t benefit from falls either. A variable, tracker, or discount mortgage means that the interest you pay is linked to another rate. This preferential rate will also usually last for up to five years. Variable rates are cheaper but if the base rate goes up you could end up paying more than someone who fixed.
SVRs – After your introductory offer you’ll be moved to the lender’s subsequent variable rate (SVR), so it’s worth comparing these so you know what you’ll be paying each month. However, these rates are always expensive, so your best bet is to make a note of when your preferential terms end so you can shop around for a better deal.
Fees and charges – There are lots of fees and charges to be mindful of when you compare rates. Common ones to look out for include set up fees, penalties for missed payments and charges if you want to overpay.
This article is an excerpt from a guide by Sara Benwell, finance journalist for money.co.uk. You can find the full blog at
www.money.co.uk/mortgages/guides/best-mortgage-rates-april-fixed-tracker-apr. Used with thanks to Journalistic.org.