It seems to be these days that every time you open a newspaper, there are a range of advertisements all offering what they claim to be the best mortgage deals available.
Now recently, I was thinking of re-mortgaging my property and taking advantage of some of these potential offers. So I thought I would examine a few in greater detail to see if what was advertised really stood up to closer investigation. But I also thought that at the same time, it would be worth having a look at mortgages for first time buyers.
As a result of the recent collapse in the banking industry, banks have effectively been ordered by the UK government to treat all new applications with a greater sense of scrutiny than they had exercised in the past.
Not only do banks now require confirmed, written proof of income, they are now expected to inspect a complete list of an applicant’s outgoing expenses during the course of a month. This examination is not restricted to major items of expenditure but, in certain circumstances, can be minutely detailed to include such items as electricity, personal fuel, heating and even food costs during a week.
The reason I mention all of this is because, it would seem, certain banks are not as scrupulous as others. In effect, this means that they are only giving a cursory examination to find out whether a new applicant can actually afford the monthly repayment costs. Obviously, the bank that is less demanding than others is in effect offering the possibility of a better mortgage deal than those that examine outgoing expenditure with a tooth and nail.
The UK Government has recommended that all banks now should require a minimum of 20% deposit, based on the value of the house under purchase. This can obviously be a headache for first-time buyers because, let us say a house is valued at £130,000, this effectively would require a minimum deposit of £26,000 – an awful amount of money in this day and age.
The bank that requires the least amount of deposit will obviously appear to offer a better deal than those that will require the full amount of 20% or even above that amount.
A large number of banks and indeed building societies offer what, from the outset, might appear to be better deals than normal deposit and fixed rate, long-term mortgages. Whilst there are a complete range of different types of mortgages, for the purpose of this article, I will stick to the main ones, mainly Tracker, Variable and Fixed Interest Rate.
A Tracker Mortgage, whilst effectively a Variable Rate Mortgage, is different in so far as the rate of interest follows or tracks the movement of a major rate, such as the Bank of England. Currently this rate is low and the tracker rate is slightly higher and varies in accordance with any movement in the Base Rate, which is that deemed by the Bank of England.
Now the present time, because of the low Bank of England interest rates, this is probably one of the best mortgage deals available. However there is one main point to consider. It is inevitable that sooner or later, and present indications are that the increase will be later, the Bank of England interest rate will increase. Therefore it follows that the Tracker Mortgage rate will also increase.
Effectively this type of mortgage allows for an initial rate of interest for the first short period of time, normally two years, after which the mortgage will be increased to a new rate but fixed for a certain period of time, which again is between 5 to 10 years, depending upon the length of the mortgage.
Deals for this type of mortgage can vary considerably. It all depends on the amount of deposit, the variable rates offered and the length of time you are tied in to a particular interest rate.
This mortgage is basically what it says on the tin – a fixed interest rate for the duration of the mortgage, which can be anything up to 25 years. Now obviously, the lender of the money has to consider how the interest rate might vary throughout the term of the mortgage. Present-day rates are low but it is inevitable that these will increase over a period of time. The lender has to allow for these increases but more important, has to try and anticipate what these increases might be. Therefore the best deals available are those that give a lower fixed rate than those who give a higher rate.
As you can see, there might very well be a certain amount of justification in a company claiming to offer best mortgage deals. Yes, a lot is determined by the amount of deposit coupled with the actual interest rates involved. It is interesting to note that most mortgage lenders offer low terms for the first two years, after which the interest rate falls back to that lenders Standard Variable Rate, excluding a Fixed Interest mortgage that’s static throughout.
The best deal however may not necessarily be that one which offers an initial low interest rate but instead, a company which overall offers a competitive interest rate could very well be more advantageous. It is necessary to look at the long-term cost of the mortgage before making a final choice.
Finally there is one major point to consider. Virtually all mortgage lenders require what is known as an Arrangement Fee. As you look around, you will find the difference between the various lenders to be quite staggering. If you consider the amount of mortgage I have used for a property valued at £130,000 for example, the arrangement fee can be as low as Zero whereas another lender has been known to charge £1260 for the same mortgage.
Yes, there are some excellent mortgage deals available at the present moment although to be honest, you have to read through all the details and work out all the costs over the full duration of the mortgage before you can decide which is the best of all deals. Do not be conned into considering that a low initial interest rate is necessarily the best mortgage deal around. It is the overall amount payable throughout the duration of the mortgage, inclusive of Arrangement Fee and Deposit, that should be your selected best deal.