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How to get a better deal on your mortgage
First-time buyers may struggle to get on the property ladder but lenders are competing to win business from existing homeowners. Here's how you can take advantage of the remortgage market.
by Michelle McGagh on Dec 04, 2012 at 08:51
There are lots of competitive mortgage rates on the market at the moment, and if you are looking to remortgage your home there are plenty of ways to ensure you get the best deal.
Lenders are taking advantage of the government’s £80 billion Funding for Lending scheme which gives banks and building societies access to money that they then have to pass on to homeowners.
This has led to mortgage rates becoming increasingly competitive. Two-year fixed rate deals have fallen to as low as 1.99% thanks to HSBC’s new deal, which is only available to those with a 60% loan-to-value (LTV) ratio and carries an arrangement fee of £1,499.
Natwest is offering a 2.28% rate until January 2015 for those with 60% LTV and Cumberland Building Society is offering 2.78% for those with the same LTV.
Lower your LTV
Typically the best deals are available to those with lower LTVs, which is why Ray Boulger of mortgage broker John Charcol recommended reducing your mortgage term if you are on the cusp of a 60% LTV bracket.
If your home is currently worth £200,000 and your mortgage is £125,000 you would have an LTV of 62.5%, just missing out on the 60% LTV deals. Reducing your mortgage to £120,000 – or 60% LTV – by paying the £5,000 difference from savings will open the door to better rates.
‘If you are close to the LTV then it is worth looking at whether you can find more cash to get to the lower LTV and lower rates,’ said Boulger.
LTV brackets typically start at 60%, moving up to 75% and then increasing in 5% increments after until they hit 90% LTV.
If you are trying to moving to a lower LTV note that the LTV brackets are fixed and a lender will not allow you to have a lower rate just because you are at 76% rather than 75% LTV.
David Hollingworth of mortgage broker London & County agreed that the best way to influence your mortgage rate is to lower your LTV and encouraged using savings to take advantage of lower rates.
Although paying off more of your mortgage is a sure fire way to lower your rate there are other things that you can do to make sure you get a look in on the best deals.
Whatever lender you go to they will take a look at your credit history so you need to make sure that you do not have any black marks against your name.
There are a number of well-known credit checking services available, including www.experian.co.uk and www.equifax.co.uk, which offer free trials that will be enough for you to make a quick one-off check of your financial history.
If you have been recently rejected for a credit card or other financial service that requires a credit check it is worth taking a look at what is affecting your score. Although it doesn’t happen too often, mistakes can happen, said Hollingworth.
‘Credit checking and scoring is something all lenders do,’ he said. ‘Make sure you are in a good position, if there are any erroneous entries on your credit file then get rid of that. Sometimes mistakes happen and a black mark gets put against someone with the same name or just in error.
‘If you have had problems with credit make sure you get them sorted out quickly.’
Hollingworth said to make sure you are on the electoral roll ‘because it is a standard thing for lenders to look at as a reference point’.
If your current lender is offering a competitive remortgaging deal then it is worth staying put but don’t let the perceived hassle of remortgaging put you off moving lenders.
Boulger said that your lender may offer the most competitive rate at 75% but not at 80%, and if you are unable to get your LTV down through overpaying, or, as some people are experiencing, the value of your home has dropped meaning your LTV remains the same or higher, then you could miss out on a better deal by staying put.
‘If you cross an LTV threshold then the best deal offered by your lender may become uncompetitive,’ he said.
Hollingworth said that you should not just automatically move on to your lender’s standard variable rate (SVR) when your mortgage deal is up, look around in advance for a better deal.
‘Instead of moving on to an SVR have a look around as a lot of lenders can do better, it makes sense to compare especially in today’s competitive market,’ he said.
Some homeowners are put off switching lenders because they see the extra cost and paperwork as too much of a hassle but Hollingworth said it’s a ‘relatively simple process’.
‘There is a bit of work involved but a lot of mortgage deals will cover the costs and it is a relatively simple process that could save you thousands of pounds. The little bit of hassle will be well worth the time and effort if it saves you money,’ he said.
Watch the fees
Jumping on a low mortgage rate is great as long as you remember to take into consideration the arrangement fees.
Hollingworth said a lot of lenders offer free valuations for remortgaging homeowners and cover the cost of legal legwork but arrangement fees could be where you are tripped up.
He highlighted the new HSBC two-year deal at 1.99%. ‘It’s a good deal but the arrangement fee is £1,499 which is quite high and the deal is limited to a maximum mortgage of £250,000 so those with larger mortgage miss out,’ he said.
‘A bigger fee makes more of a difference to a smaller mortgage, it may not be worth it.’
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