How to choose your mortgage

By all recent indicators – OK, the Rightmove, Nationwide and Halifax house price indices – it’s boom time for the housing market. Prices are going up, and so is interest.

The latter two are cautious about the future though – both have suggested that a crash could be on the horizon, especially given the state of the jobs market.

Indeed, lenders tend to be more cautious about the future – they are making an investment in buyers after all, and they want to be sure of a return. Case in point, the number of mortgage products available has halved since March while rates have risen according to comparison site Moneyfacts.

And yet, bolstered by Rishi Sunak’s stamp duty freeze, homes are changing hands and mortgages are being approved.

With that in mind, this Focus is on how to pick a mortgage.

For this, I spoke to Paul Wheatcroft, director of My Local Mortgage, a website that connects you with mortgage advisers, and Richard Hayes, CEO of Mojo Mortgages, a free online mortgage broker, to get their views on the key questions.

What kind of mortgages are there?

Paul: Various types of mortgages are available, including fixed rates, tracker rates (these typically run a set percentage above either the lender’s standard variable rate (SVR) or the current Bank of England Base Rate), variable rates (including SVR, which differs from lender to lender) and occasionally niche products like capped rates (which are variable but have a protective ceiling).

Should you pick a fixed or variable rate mortgage?

Paul: This depends on a number of factors, mainly appetite for risk as variable rates can obviously increase whereas Fixed Rates offer protection and peace of mind. A young family for example might prefer a fixed rate.

Richard: Fixed rate products are generally for 2, 3, 5, 7, and 10 years. What you pick depends on your individual circumstances. If you’re someone who is really risk averse, have a good loan to value, and you don’t expect to move for the foreseeable future or expect to make a major over-payment, a long term fixed mortgage would be best for you.

On the other hand, if you’re buying a house or flat for the first time just to simply get on the property ladder, but you expect to move quite quickly, getting a shorter fixed rate mortgage would be a better option.

Generally speaking, if interest rates are relatively low, but are about to increase, then it will be better to lock in your loan at that fixed rate. Depending on the terms of your agreement, your interest rate on the new loan will stay the same, even if interest rates climb to higher levels.

For a fixed rate mortgage, how long should you fix it for?

Paul: Shorter term deals are cheaper so it is a trade-off in many ways. Again, it’s circumstance-dependent.

A first time buyer might want to keep costs as low as possible so a 2-year deal might suit as they “bed in” to home ownership. Perhaps they know in a few years that they will be earning more money for example, so are happy to review then.

A family moving home might opt for a slightly more expensive, longer-term deal for security purposes and because they have a secure, established income.

Richard: It really depends on your individual circumstances. At the moment, many people are opting for both two and five-year fixed rate mortgages. A shorter term is best if you know that the home you’re purchasing won’t be your “forever home”, but things change all the time, so it’s really important to speak to a whole of market broker who can help you navigate through it all!

How long should your mortgage last?

Paul: Mortgage term is again about circumstances. A shorter term is cheaper in terms of the total amount payable over time including interest, while a longer term will increase that total amount. However, to facilitate this, the monthly payments will be higher for short term mortgages.

You might find those new to home ownership will extend their overall term initially to keep payments down to fit affordability while they’re young before revising this later down the line as their income increases via career progression etc.

How do you find the best mortgage deal?

Paul: It can be difficult and overwhelming. There are substantial resources online to find the “best deals” but those are numbers only. What matters is what is best for your circumstances so I would strongly recommend a qualified, experienced adviser to guide you.

Richard: By speaking to a whole of market mortgage broker. Not only will they take your circumstances into account, they will also assess the lenders based on the interest rate, the fees they charge, their timescales plus much more to recommend the most suitable product in the whole of the mortgage market.

What are the benefits of a mortgage adviser?

Paul: Mortgage advisers offer the best deal for your circumstances and needs. These words are the mantra of mortgage advice and always will be. They will conduct a full fact-find with you and based on that will make appropriate recommendations.

Richard: A mortgage is undoubtedly one of the biggest financial commitments you can make, so it’s important to speak to an expert who can take your circumstances and all your needs into account to essentially advise you on a mortgage product that is best suited to you.

How do you pick a mortgage adviser?

Paul: Word of mouth is important, reputation is king in the business. Look for genuine testimonials and by all means have an informal initial meeting to determine if you are a good fit. Various websites such as My Local Mortgage provide details of advisers across the country for you to consider.

Richard: It is very important that you trust the person who will be advising you on such an important financial decision. There are a few ways in which you can do this:

A. Choose a fee free broker. Lenders pay mortgage advisers a procurement fee when they place a case with them. There are some brokers who charge a fee above it which is not necessary.

B. Make sure that the adviser works around your time and you are not having to spend hours speaking to them. For example, customers at Mojo can fill in their details from the comfort of their home and choose a time that is convenient to them to speak to a mortgage adviser.

C. Check the reviews other customers have left on platforms like Trustpilot. This will give you an idea of other customer’s experiences.

What should you ask your mortgage adviser?

Paul: Always ask what fees they charge and whether they are “whole of market”. This means they deal with all lenders, meaning you won’t miss any deals simply because of how they’re set up.

Also discuss insurance with them, it’s an important part of the jigsaw.

Buildings and contents insurance are a given to protect your asset but you also need to protect your debt.

Life insurance is there to ensure that if one party were to die, the other wouldn’t then naturally struggle with the mortgage going forward as the amount would be cleared via the policy.

Similarly, work-related issues can be covered via the likes of critical illness cover to protect you if you succumb to any one of a number of pre-existing conditions and are therefore unable to work.

Also, mortgage payment protection insurance can provide a monthly income to you while you are off work due to extended illness or similar.

None of these are compulsory but your adviser would perhaps make recommendations based on your circumstances in this area to ensure you’re protected where it matters.

Richard: It depends on what you are looking to do. If you are a first time buyer, you might want to have an understanding of how the process works, what is involved, what are the costs, how much you can borrow etc.

For someone who is looking to remortgage, they might just want to know whether it would be more cost effective for them to stay with their current lender or move to another lender.

Above all, if you speak to a good adviser, they will be able to guide you through the process and encourage you to ask relevant questions, gauge your priorities and make a recommendation.

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