Rate cuts and sub-4% mortgages are making headlines but Gemma Bennett of The Mortgage Mum fears these are misleading for many borrowers. Here she explains how to establish what mortgage is best for YOU
Mortgage rates have been making headline news for well over a year now and, this August, we saw the first Bank of England base rate drop since March 2020.
We had anticipated this drop might happen around August or September and we were grateful to see it. What’s more, experts are also predicting there may be another reduction before the year is out.
When the BoE changes its rate – whether it’s an increase or decrease – this can have a direct and immediate effect on tracker mortgages – these are the deals which track the BoE rate. In many cases it can also impact variable rate mortgages because lenders may choose to adjust their own standard variable rate as a result.
If you are currently in a fixed rate deal, the BoE changes don’t directly affect you until the time comes for you to look for a new mortgage deal.
However, if you are currently looking at the best mortgage options for your purchase or remortgage you may be wondering what is the best product out there? Who is best lender? And where can I find the cheapest option, especially now that rates are showing reductions?
The answer is… as unique as you.
This is because there is no BEST rate, product or lender for all.
There are a number of factors which will impact the answer to this question, so please allow me to explain how we – as brokers – come to offer our advice and recommendations.
‘Cheapest most suitable option’
We use the phrase ‘cheapest most suitable option’ when sourcing the best product and rate for a client because of just how individual the answer is.
Your needs and circumstances have to be considered and crosschecked against the cheapest rate showing up for you. This is how you achieve the cheapest most suitable product.
Here’s an insight to how different factors to your needs and circumstances can affect the best rates available for you.
Reason
The purchase products available are priced differently to remortgage or product switch products. So, we will consider what you need the mortgage loan for.
Loan-to-value
The loan-to-value (LTV) will also impact the product choices available to you. This is the amount of money you need to borrow and it is stated as a percentage of the value of your property.
The higher the LTV, the higher the rates. Mortgage lenders offer their lowest rates on products under 60% LTV in general.
Affordability
Lender’s affordability calculations vary in the background. One lender may offer a cheap rate but you may not fit their affordability criteria. Another lender, however, may have an offering which fits your affordability needs but the rate may be a little higher.
Product fee
Some rates are low but they include a high product fee. Meanwhile, other higher rates may have no product fee. The adviser will calculate the cheapest option for you with these elements considered.
Fixed-rate period
Currently, fixing for five years is cheaper than fixing for two-years when it comes to monthly repayments. This is largely because the available market rates are expected to be lower in two to five years’ time.
You will want to consider the length of time you intend to fix a product based on your future plans. Fixed rate products often have early repayment charges (ERCs) if paid off within the fixed period. You can find out more about this in this feature discussing two- or five-year fixed rate options.
Other factors
Other elements such as credit history, age and how you’re employed will also factor into a mortgage product recommendation. As lenders have varied criteria on how they view and calculate these elements.
Can I take out a sub-4% mortgage?
When you see headlines announcing a particular lender has dropped its mortgage rates below 4% – which we have seen recently with a number of high street lenders such as Nationwide, Barclays and NatWest – please do take heed these particular products have their own specific criteria.
Let’s take the Nationwide mortgage, which was launched in July with a rate of 3.99% – as an example. There are the details:
- Reason: NEW customers moving home – purchase product
- LTV: At 60% LTV or less
- Product fee: £1,499
- Period: five-year fixed rate basis.
This is clearly a great product and option, but only if you qualify for all the above and it suits your needs now and in the immediate future.
What’s really happening to mortgage rates?
We can however take some comfort in the general trajectory of the market. The BoE Base rate finally reducing and lenders like Nationwide coming in with sub 4% products will lead the way for other lenders to start to re-price. Hopefully more reduced rates will become available over the coming six to 12 months and beyond.
It’s misleading to say rates are ‘dropping’, the word in my opinion conjures imagery of sudden and large falls.
However, it is fair to say that gradual reductions are being seen and it’s expected these will continue, cautiously, over the coming years. This is as long as we aren’t met with sudden political unrest or unprecedented times.
The best way to find the BEST product for you, is to get advice from a broker who has access to the market. Allow them to cross check all your needs and circumstances to find the cheapest most suitable rate for you.
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Connect with The Mortgage Mum team
You can connect with Sonya via her website www.sonyamatharu.com and you can contact Gemma via email Gemma@themortgagemum.co.uk: or at her website, here.
gemmabennett_themortgagemum.co.uk
https://www.instagram.com/sonyamatharu_/
Gemma Bennett _The Mortgage Mum
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Gemma Bennett
https://www.linkedin.com/in/sonya-matharu-349265182/
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