How to get the best interest rate on your mortgage as five more banks slash rates
THOUSANDS of borrowers can snap up cheaper mortgages as major lenders battle it out to slash rates.
Barclays, HSBC, Nationwide, NatWest and TSB have all dropped the price of home loans this week making it more affordable for first-time buyers to get on the ladder, as well home movers looking for their next step.
Nationwide is offering market-leading rates of 3.78% from tomorrow (Thursday) after reducing costs by 0.26%.
It comes after HSBC dropped rates to 3.81% for customers of its Premier current account.
And, after reducing prices, Barclays and NatWest both have rates starting from 3.83% while TSB starts from 4.09%.
The lower rates from banks and building societies come after the Bank of England cut the base rate at the start of August.
It’s not just the big name lenders that have reduced borrowing costs.
Online lender MPowered Mortgages has today trimmed prices for the third consecutive week.
Skipton Building Society and Virgin Money have also reduced rates.
The changes mean borrowers can make big savings on their mortgage bills compared to just a few months ago.
The average two-year fixed mortgage rate today is now 5.62%, tumbling from 5.93% in May, according to data website Moneyfacts.
At the same time the average five-year fixed rate is now 5.25%, a sizeable drop from 5.50% in May.
However, if you’re on a fixed rate mortgage you’ll need to wait until near the end of your mortgage term to lock into lower rates or you’ll be subjected to hefty exit charges.
Anyone on a tracker or variable rate mortgage can typically move to a fixed rate without any penalty.
How to get the best mortgage interest rate
Anyone coming to the end of a fixed-rate mortgage term can lock into a new lower rate up to six months before your product expires.
Prospective buyers can also get mortgage rates locked in up to six months before completing on a home.
The very best mortgage rates are typically reserved for borrowers with the largest amounts of equity in their home – at least 40% or more.
For example, all of the mortgage rates currently below 4% are only available to borrowers who require a loan size of 60% of the property value or less.
Having a good credit history will also mean that you can access the top deals.
Finding the best rate on offer to you is simply a matter of searching the market and comparing lenders.
It is usually best to get an independent mortgage broker to look at the market.
Advisers can access deals that direct borrowers are not able to and have systems that can easily compare the best rates.
Separately, it can also be worth checking with your current account provider to see if they can offer you a competitive rate. Some providers will give customers special rates that could beat others on the market.
However, it’s not just the interest rate that you need to consider.
Product fees attached to mortgages can vary wildly – some come with no added costs at all while others can be thousands of pounds.
It can mean that it sometimes makes financial sense to opt for a higher rate deal if is fee-free over a loan with a lower rate that has a big extra charge.
A good broker can help you to work out the whole cost of a mortgage which includes all the repayments over the term, plus fees, so that you can see which deals are the best value for your circumstances.
How to apply for a mortgage
Applying for a mortgage can be a daunting process but there are some steps you can take to help it run more smoothly.
To get an initial idea of what lenders will offer you, you can use an online mortgage calculators, which provide a rough estimate based on your financial details such as earnings and outgoings.
Then you should start to gather documents and information that will be needed for applications such as proof of identity, such as your passport or driving licence, and proof of address, such as utility bills or bank statements, according to Nicholas Mendes, technical manager at broker John Charcol.
He adds: “Several factors determine how much you can afford to borrow for a mortgage.
“Key considerations include your income, existing debts, credit score, and the size of your deposit.
“Lenders assess your income to determine your ability to make monthly mortgage payments.”
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.