I think it would be an understatement to say that the latest mini-budget has been a bit of a disaster.
The fall out was immediately felt in the stock market, where shares plunged in value across the board.
But then things trickled into the mortgage sector where deals were being pulled left, right and centre as interest rates surged.
While rising interest rates might be great news for savers, for those trying to get a mortgage – whether that’s a new one or a renewal – things are proving tricky.
So this week, I got some experts from the mortgage industry to weigh in with their tips on how to get a good mortgage deal these days.
Go for a longer fix
Earlier this year I wrote about how long you should fix your mortgage for.
The answer is pretty complicated, but new data from Defaqto seems to suggest that, right now at least, it might be better to go for a slightly longer fix than a shorter one.
Speaking about the recent mortgage interest rate changes, Katie Brain, consumer banking expert at Defaqto, said: “The biggest increases have been for 2-year fixed rates for remortgages.
“At the moment, 5-year fixed rates have not increased as much as the 2-year fixed rates, but overall, they have still increased by more than the base rate increase.”
Obviously what’s offered to you may not be what’s available on the market – your offer is dependent on a myriad of things, including affordability, loan amount and the value of your home – but it can be an indicator of where to start.
Speak to a mortgage broker
Sarah Thompson, managing director at Mortgage Scout, suggests: “If you have six months remaining or less on your current mortgage deal, speak to a mortgage broker. They will give an insight into what rates are doing.”
As a mortgage broker, Thompson obviously has a vested interest in pointing you in that direction but she makes a good point.
A good mortgage broker can see deals that aren’t available publicly and they can help facilitate the application.
The key though is to go to a whole of market broker – basically someone who will show you all of the deals, even if they can’t set it up for you.
Six months before renewal is also a good time as you usually have a six month grace period for leaving your mortgage early (do check though) and it may take that long to get your new mortgage set up.
But don’t forget your current lender
“Mortgages available directly through the lender continue to top the best buy tables, so it is worth contacting your bank first to see what they can offer you”, according to Defaqto’s Katie Brain.
It helps, too, that they already know your financial situation – and how you’ve been keeping up with your mortgage repayments – so they may be more amenable to offering you a better deal.
Even then it’s worth doing a quick comparison to see what’s available out there because, well, you just never know.
Improve your credit score
“A good credit score can lead to lower mortgage rates,” says Armand van Asweden, editor at Invest Fox.
He’s not wrong there – the lower the risk associated with lending to you, the better the deal lenders are likely to offer.
While building up a great credit score can take months or years to achieve, there are some easy steps to take, including having a couple of bills in your name or switching on Experian Boost.
Still, it might take a couple of months for things to appear on your record so it’s good to have a look through your credit file before you submit your application.
Also look out for any glaring red flags that might put off a lender.
Lower your LTV
If you’ve ever looked at mortgages you’ll have seen mentions of loan-to-value (LTV) ratios of 95%, 90%, 80%, 70%, 60% etc.
If you have a low LTV, your lender will be more likely to give you a lower mortgage interest rate.
However, these are often matched to a particular LTV band.
So say you have an LTV of 71%, rather than being offered a deal that matches that, you’re more likely to be offered a deal that’s based on an LTV of 80%.
If you can club together a bit of extra cash to drop that LTV to 70%, then you’re pretty much guaranteed a better deal.
Overpay your mortgage if you can
In the longer term, it’s also worth overpaying your mortgage according to van Asweden.
“While everything is going well, pay all you can. It might be a bit late for some, but this strategy is something that can be a massive salvation if and when interest rate spikes occur.”
This is of course more about reducing your interest repayments in the longer run.
I would add that you should double check whether there’s a limit on how much you can overpay each year without paying a penalty – it’s usually 10% of your outstanding balance.
Last year I also wrote about whether you should invest or overpay your mortgage, and created a nifty spreadsheet to help you crunch the basic numbers.
Suffice to say the tables have really turned since then.
