Now's the time to cut your mortgage bill by thousands
This is the moment to try and cut your mortgage bill by £1,000s according to our Money Saving Expert Martin Lewis – if you leave it, that may all be about to change. So here he is with a clarion call for ALL mortgage holders, to check NOW if you’re on the cheapest deal possible…
If you take a historic view, mortgage deals aren't just cheap right now, they're miles below the cheapest – with some below 1%. It's possible we are at the bottom of the mortgage rate curve. When UK base rates were cut from 0.5% to 0.25% in August, the thought was they may drop again. But the economy has stabilised so the Bank of England's now indicating that's less likely.
Plus, Donald Trump's victory has seen a jump in the City's long-term interest rates which the price of fixed-rate mortgages are based on. So there is a chance we'll see fixed costs start to rise. While this is far from certain, rates are so cheap, even if they did drop, my guess is the gain would be limited - yet if they go the other way, the cost could be huge. So if you want safety, checking now is sensible.
Yet while a rise is far from certain, if it did, the cost could be huge. So if you want safety from this, checking now is sensible, and the savings can be huge like Kperat who emailed:"Fixed at 1.24% for 2 yrs, reduced term to 13 yrs without paying much more a month. Will be saving about £20,000 even after fees. Thanks."
Here's what to do to find your cheapest deal…
How cheap are mortgages right now?
HSBC has a two-year fix at 0.99% - which is the cheapest ever fixed rate. Yet it's not for all as you need a top credit score to get it, there's a £1,499 fee, and you can't borrow more than 65% of your home's value – if you were borrowing 90% of your home’s value then the Co-op Bank has a two-year fix at 1.94%, with a £1,649 fee. This just show how competitive the market is and the same is true even if you fix longer with five-year fix’s ranging from 1.84% to 2.54% depending on how much of your home’s value you’re borrowing.
If you’re on your lender’s standard variable rate (SVR) - the default rate most fixes and trackers revert to when the intro deal ends - then the savings can be huge. For example someone moving a £150,000 mortgage from 4% SVR to the two-year fix at 0.99% will save £4,000+ over two years even after fees.
For an easy benchmark of what’s available in your circumstances, start with a comparison site that includes all deals, including ‘direct only’, those that aren’t offered by broker. These include Martin’s ‘Mortgage Comparison’ or sites such as TotallyMoney.com.
Finding a cheap deal isn’t the end – you need to get accepted.
The days when lenders would fling out deals to all and sundry are long gone, getting accepted is now the challenge. There are two key elements to this...
Is your credit score good enough? Your credit history is a huge part of whether you'll be accepted for any type of credit, including a mortgage. See last week’s boost your credit score info for what to do on that. Are the repayments affordable? For the past couple of years, lenders won’t just check if you can afford the monthly repayments at the current rate, but they’ll also stress test affordability if rates were 6% or 7%. And crucially this doesn’t only apply for new mortgages, it’s also for remortgages too (which is ridiculous and on a side note I am campaigning against this). So it’s really important you reel in your spending months before applying, as lenders will want evidence of income, big bills, expenses and even eating out.To help match your characteristics to which mortgages are available is something a good mortgage broker can do that you can’t do yourself. But do ask if the broker will check all deals available to them and not just a panel of lenders. Also, check how much using a broker will cost and ensure you use a qualified one. Some phone-only brokers such as London & Country Mortgages are fee-free but if you want face-to-face help then ask friends for a local broker recommendation or use Unbiased orVouchedFor to find one.
Don’t ignore the fees
The smaller your mortgage, the bigger the impact of fees. A good way to compare mortgages is to divide the fee across the discount or fixed period. So a £1,200 fee on a two-year (ie, 24-month) deal is £50 a month – then add that to the monthly repayment.
Fix or variable rate?
The advantage of a fix is you get price and budgeting certainty that the rate won't move for a set time. Whereas variable deals move with the UK interest rate (and sometimes just at the provider's whim). Generally you pay a little more to fix, but not much. Ask yourself how much you think rates will rise over the period. If safety's what is important for you, err on the side of fixing, and fixing for longer – and right now with fixed deals being outrageously cheap this is a great time to do it.
Got savings? They could get you a better mortgage
For this, you need to find your current loan-to-value (LTV) – the proportion of the value of your home you're borrowing, so £80k on a £100k property is 80% LTV. At every 5% LTV threshold from 95% down to 60%, deals tend to get better, so a little extra can have a big impact on your rate.
For example, if you've a £150,000 home, and want a £137,000 remortgage, that's 91% LTV, and the top five-year fix is 3.98%. Yet use £2,000 of savings to reduce the borrowing, and you'd then be at 90% LTV – where the top five-year fix is 2.54%, saving c. £1,100/year in payments.