The Salary Calculator

Our guide to mortgages

by Madaline Dunn

Deciding to get a mortgage can be an extremely exciting move. That said, it’s not without its complications, and people can feel a little bit bewildered by the process. A recent study by Paymentshield found that over half of adults (52%) aged 18-34 have a poor understanding of the mortgage process. The study also found that 32% of 35 to 44-year olds have a similar lack of understanding.

That said, it’s important to make sure that you’re all clued up when it comes to mortgages so that you get the best deal possible.

It has been widely reported that there’s currently an ongoing price war in the mortgage market, with some lenders offering super-low rates. For example, HSBC and TSB recently unveiled mortgage rates below 1%, with an interest rate of just 0.94%. However, when being drawn in by low rates, it’s important to make sure you’re not caught out by other fees.

At The Salary Calculator, we’ll walk you through some of the basics of the mortgage market. This article will explain:

• The different types of mortgage rates
• How to access the better rates
• Initiatives for first-time buyers
• Best rated mortgage lenders
• How to choose the right mortgage for you

The different types of mortgages

There are two types of mortgages out there:

Fixed-rate mortgages: This kind of mortgage will see you pay a fixed rate for a set period of time, usually from between two to ten years.

Variable-rate mortgages: This kind of mortgage is not fixed at a set price, can vary from month to month, and comes in a few different forms.

• Tracker mortgages: This type of variable mortgage follows or ‘tracks’ a specific index, typically the Bank of England’s base rate, for a set period.
• Discounted rate mortgages: This type of variable mortgage is set below the lender’s standard variable rate (SVR) for a defined period of time.
• Capped rate mortgages: This type of mortgage is also variable, meaning it can go up or down, but a cap is placed on the level it can rise.

How to access the better rates

When looking to secure the best mortgage rates out there, several factors can improve your chances.

A good credit score is a big factor taken into consideration when lenders make a decision. A low credit score indicates that a borrower may be less financially reliable and more likely to default on payments in the eyes of a lender. Likewise, a high score indicates more stability and less risk.

However, it’s not the be-all and end-all if your credit rating isn’t the highest it can be. You can boost your score. This can be done by making sure you reliably make payments, keeping your credit utilisation low, and building your credit history.

To get the best deal on your mortgage, you must also compare deals. While you may think that you’ve found a good deal, without shopping around, you may miss out. There are lots of comparison websites out there that can help you with your search.

Another good tip for securing a good rate is to try and pay a large deposit if you can afford it. This will show the lender that you are less of a risk credit-wise and lead to lower interest rates.

Initiatives for first-time buyers

There are some schemes to help those buying a home for the first time to make the process a little smoother.

The First Homes scheme was introduced to create more affordable housing and offers homes at a discount of 30% compared to the market price.

The 95% Mortgage Scheme was introduced in the Spring Budget 2021 and allows individuals to borrow up to 95% of a property’s purchase price and secure a mortgage with just a 5% deposit.

Best rated mortgage lenders

In the UK, there are lots of mortgage lenders to choose from, over one-hundred in fact. Some of the biggest lenders include The Lloyds Banking Group, Nationwide Building Society, and Royal Bank of Scotland.

Trussle found, when comparing customer satisfaction, the mortgage lenders that scored the highest included Bank of Ireland, Post Office, and Aldermore.

Those that scored the highest regarding the fastest approval of new mortgage submissions included Halifax, BM Solutions, and HSBC.

Choosing the right mortgage for you

Each person will be looking for different things when choosing a mortgage; for example, you could be buying a house for the first time, remortgaging, moving house or even buying to let.  As a result, one size does not fit all.

Mortgage comparison websites are your friend here, and it’s also worth reaching out to a mortgage broker for advice. After all, choosing a mortgage is a life-changing and important decision that will affect you and your finances for years to come.

Moneyfacts, an independent money comparison website, lists that for home-movers, some of the lowest rates are currently offered by NatWest and RBS, which both have a rate of 1.04% for the first two years before returning to 3.59%. Both also have product fees of £995.00.

The lowest three year fixed rate for home-movers comes from Virgin Money, which offers a rate of 2.15%, before reverting back to 4.34% and has a product fee of £995.00.

First-time buyers, meanwhile, can secure one of the lowest rates from First Direct, which offers 2.69% fixed for two years, when it reverts to 3.54%. There is a £490.00 product fee.

NatWest also offers a low rate, at a fixed rate of 2.69%, before returning to 3.59%, with product fees of £995.00.

The lowest five-year fixed rate for first-time buyers can also be found at First Direct at 3.14%, which reverts back to 3.54% after five years.

For those looking to buy-to-let, The Mortgage Works offers a rate of 1.19% for two years before reverting to a 4.74% variable. This mortgage has a 2.00% advance.

Another mortgage with a low rate comes from Virgin Money, which has a rate of 1.48%, for two years before returning to a 4.54% variable, with an arrangement fee of £1995.

Virgin Money also offers the lowest 3-year fixed buy-to-let deal, with a rate of 1.71%, which reverts to a 4.54% variable. It has an arrangement fee of 4.54% Variable.

It’s worth noting that just because these providers offer the lowest rates doesn’t mean that they are necessarily the best deals. When making a decision, it’s important to factor in total product fees, incentives and the full costs. Rates are also constantly changing, so it’s best to review the charts regularly before settling.

Tags: Economy, First-time buyer, Loans, Mortgages, savings