Tips to find the best mortgage deal

Obtaining a mortgage is no easy feat, let alone finding the best deal for your financial circumstances. Often, you will have to compromise on one thing or another. Whether that’s on the interest rate or the agreed term length, you may not always find a deal that gives you exactly what you want – particularly in the current property market.

This can be hard to accept, especially when you have to fork out a lot of money for your home; it’s a big financial decision and probably the biggest one you’ll make. The last thing you want is to be stuck in a long-term mortgage deal that cuts into your savings every month.

Luckily, this doesn’t have to be the case. You can do a few things to ensure you get a great deal on your mortgage so you can put your hard-earned money towards building a home instead of worrying about how you will keep up with payments.

In this article, we’ll go through 10 tips to find the best mortgage deal for you, as well as discuss the different types of mortgage rates available.

How to find the best mortgage deal?

Our 10 tips include preparing yourself for the best offers by getting your credit score and history in order, as well as exploring where to find the best deals, such as going to a broker or using a price comparison site.

There are many things to consider before choosing a mortgage deal. Still, this list will give you the knowledge to know what to look out for, and what to do to find the best possible deal for you. Let’s explore these in more detail.

1. Start with finding out how much you can afford

Before you start looking at mortgage deals, lenders, and homes, it’s important to calculate how much you can actually afford. Various mortgage payment calculators on the internet will evaluate how high your monthly repayments will be at different mortgage rates, and how much they will cost over a lifetime.

By playing around with the numbers a little, you’ll get an idea of what kind of deals are feasible for your financial situation. You will have information on what interest rates and term lengths are affordable, how much you would have to borrow, etc. So when it comes time to search for a mortgage deal, you can sift through the options more efficiently to find the one that works best for you.

2. Ensure your deposit is above the minimum required amount

One of the best things you can do to find the best mortgage deal is to put up a deposit that’s more than the minimum required amount. Most mortgage providers require a 10% downpayment on the house’s value. If you can put up 15% or even 20%, most mortgage lenders will offer you more favourable interest rates. Plus, since your lower interest rate will be charged on a lower loan value, your monthly payments will be much lower.

3. Be sure to factor in mortgage fees

Alongside your mortgage rate, you will be charged other mortgage fees which can significantly affect the feasibility of a deal. A mortgage deal can look great on paper, but when you factor in the total fees you’ll have to pay, it may mean that it is out of your budget.

First and foremost, you’ll have legal fees which you will have to pay to your solicitor. These are necessary for setting up a mortgage and dealing with the paperwork.

You will almost certainly have to pay arrangement fees which are paid to the mortgage lender for setting up your mortgage policy. Some lenders charge a flat rate, whereas others charge a percentage of the amount you’re borrowing. This will depend on which mortgage provider you use.

You may also have valuation fees. When you apply for a mortgage, a mortgage lender will have to survey the property to determine whether its value is worth the amount you want to borrow for it. Whilst this is typically done for their records, some lenders ask the applicant to pay for these costs.

Some mortgage lenders also charge early repayment fees if you decide to pay off your mortgage early. It is usually between 1% and 5% of the early payment value. Whether you have to pay this will depend on your mortgage provider.

Typically, mortgages with the lowest interest rates often have higher fees and costs. Therefore, before you decide on a mortgage deal, it’s important to factor these in.

4. Improve Your Credit Score

Perhaps one of the most important things you can do to ensure you find the best mortgage deals is to improve your credit score. Your credit score is a major factor when mortgage lenders assess your suitability for a mortgage.

Your credit score indicates how likely you are to repay the borrowed money. The higher the score, the less risky you look to a mortgage lender. Therefore, they are more likely to offer you favourable terms on your mortgage. They will also give you better interest rates than someone with a lower credit score, meaning your monthly mortgage payments will be lower.

It is said that a small difference of 20-30 points on your credit score can result in a change of more than 0.25% on the interest rate offered to you. Whilst 0.25% may seem like very little, this could mean you pay more than £10,000 more or less in interest payments for a £200,000 home.

If you have a low credit score, a provider that specialises in bad credit mortgages may be able to help you.

5. Enquire with building societies

For many people, the first place they look for a mortgage is with their bank provider. However, the chances of finding the best mortgage deal with a bank are low. Instead, it’s recommended to try building societies. They usually offer much lower rates on low-deposit mortgage loans, making them a better alternative – particularly for first-time buyers.

6. Use a mortgage broker

To obtain a mortgage, many prospective homebuyers will go through mortgage brokers. Not only do they alleviate the hassle of searching for a mortgage, but they can also advise you on the best deal for your circumstances.

Additionally, many mortgage brokers have connections with mortgage lenders and can negotiate better deals on your behalf. They can also be privy to exclusive deals that aren’t offered to anyone but them, which can be the difference between a good deal and a great deal.

Something to keep in mind is that some brokers only deal with a select number of lenders. As such, the options they have to choose from may be limited, so it’s also a good idea to explore other avenues.

7. Use price comparison websites

Popular price comparison websites such as GoCompare, Compare the Market, and MoneySuperMarket allow you to compare mortgage deals from various lenders. They are essentially a one-stop shop for all mortgage loans you can find on the internet.

Price comparison websites can showcase almost every mortgage deal available to a homebuyer, excluding mortgage deals reserved for brokers or direct customers. They also allow you to see the best and lowest interest deals at a certain point in time, which can help you identify if the current market position is something you should be capitalising on or if you should wait a little longer.

8. Find an online mortgage broker

One of the other options you have to choose from is using an online mortgage broker. It is becoming an increasingly popular choice amongst applicants due to how quick and convenient it is. You can also track your mortgage application online without dealing with paperwork and administrative delays.

Whilst a regular mortgage broker will meet with you in person to discuss your circumstances and find a deal for you, online mortgage brokers ask for your information using an online form. They then use the details you’ve provided and their bespoke algorithms to scour the internet for the best deals. Some online brokers can compare more than 10,000 deals before recommending one.

You won’t be left completely in the dark, though. Once you’ve been recommended a mortgage deal, you will still have direct contact with a mortgage advisor who will discuss it with you.

9. Share responsibility and apply with your spouse or partner

If you apply for a mortgage with a spouse or partner, you are more likely to receive a better deal than if you were to apply alone. This is because mortgage lenders want to keep their risk of lending money as low as possible. One way to do this is by offering a mortgage to two people rather than one.

You and your partner can share the responsibility of the house and the monthly payments, which means that you will be more likely to keep up with them. This lowers the risk for the lender and can result in them offering you a better deal, as well as making the mortgage more affordable for you as the costs are now split.

However, ensuring that your spouse or partner has a good credit history and score is important. If it’s poor, it may not be worth risking their name on your mortgage application as you may be offered a worse deal than if you had applied as a sole applicant.

10. Consider applying with a guarantor

A mortgage guarantor is someone – usually a parent or close relative – who is willing to cover your monthly mortgage payment if you cannot afford it. Essentially, they are a safety net and will take responsibility for your mortgage should you encounter financial difficulty.

This option is great for those with a poor credit history and rating or those who do not meet the mortgage criteria lenders have set out. As we’ve discussed, lenders want to lower their risk to an absolute minimum, and having a guarantor achieves this. Even if you meet the mortgage criteria, you may be offered a better mortgage deal if a guarantor is present.

What type of mortgage rate is best?

The type of mortgage rate that’s best for you will depend on your circumstances, but there are two main types to choose from.

Fixed rates

These make your life simple. It’s a fixed rate that remains the same every year, meaning you know exactly how much you’ll be paying, which can be great for those who like to budget and plan. However, they do also come with a few downsides. Fixed-rate mortgages tend to come with early repayment charges, so if you are looking to pay it off before the agreed termination date, you will have to pay a fee. Also, if you happen to take out a mortgage during a year with high-interest rates, you will be stuck with this for the foreseeable future.

Variable rates

Variable rates track the base interest rate set by the Bank of England. When the base interest rate increases, your mortgage rate will increase accordingly. Most mortgage lenders will also add a premium to this, typically between 0.5% and 0.75%. This can be great for those who are looking to capitalise on the varying interest rates each year, but in years of inflation such as 2022, where the base interest rate has more than tripled, you could find yourself paying a lot more than you would have with a fixed rate.

Final thoughts

Finding a good mortgage deal is not easy, especially these days. However, if you follow these 10 tips, you will put yourself in the best position possible to assess the mortgage market to find one that works for you.