The mortgage market is incredibly competitive and it can be hard to understand what exactly is on offer.
From the many different providers to the extensive range of products and rates available, we’ll take you through the routes to getting a mortgage, and the importance of carefully studying your options before making a decision.
Choose a few options – speak to a number of independent mortgage advice services as well as your bank or building society.
Fixed rate mortgages
The interest rate you pay will stay the same throughout the length of the deal no matter what happens to interest rates. You’ll see them advertised as ‘two-year fix’ or ‘five-year fix’, for example, along with the interest rate charged for that period.
- Peace of mind that your monthly payments will stay the same, helping you to budget.
- Fixed rate deals are usually slightly higher than variable rate mortgages
- If interest rates fall, you won’t benefit
Watch out for
- Charges if you want to leave the deal early – you are tied in for the length of the fixed term
- The end of the fixed period – you should look for a new mortgage deal two to three months before it ends or you’ll be moved automatically onto your lender’s standard variable rate which is usually higher
Variable rate mortgages
With variable rate mortgages, the interest rate can change at any time. Make sure you have some savings set aside so that you can afford an increase in your payments if rates do rise.
Variable rate mortgages come in various forms:
Standard variable rate (SVR)
This is the normal interest rate your mortgage lender charges homebuyers and it will last as long as your mortgage or until you take out another mortgage deal. Changes in the interest rate may occur after a rise or fall in the base rate set by the Bank of England.
- Freedom – you can overpay or leave at any time
- Your rate can be changed at any time during the loan
This is a discount off the lender’s standard variable rate (SVR) and only applies for a certain length of time, typically two or three years. But it pays to shop around. SVRs differ across lenders, so don’t assume that the bigger the discount, the lower the interest rate.
Two banks have discount rates.
Bank A has a 2% discount off a SVR of 6% (so you’ll pay 4%)
Bank B has a 1.5% discount off a SVR of 5% (so you’ll pay 3.5%)
Though the discount is larger for Bank A, Bank B will be the cheaper option.
- Cost – the rate starts off cheaper which will keep monthly repayments lower
- If the lender cuts its SVR, you’ll pay less each month
- Budgeting – the lender is free to raise its SVR at any time
- If Bank of England base rates rise, you’ll probably see the discount rate increase too
Watch out for
- Charges if you want to leave before the end of the discount period.
Tracker mortgages move directly in line with another interest rate – normally the Bank of England’s base rate plus a few percent. So if the base rate goes up by 0.5%, your rate will go up by the same amount.
Usually they have a short life, typically two to five years, though some lenders offer trackers which last for the life of your mortgage or until you switch to another deal.
- If the rate it is tracking falls, so will your mortgage payments
- If the rate it is tracking increases, so will your mortgage payments
- You may have to pay an early repayment charge if you want to switch before the deal ends
Capped rate mortgages
Your rate moves in line normally with the lender’s SVR. But the cap means the rate can’t rise above a certain level.
- Certainty – your rate won’t rise above a certain level. But make sure you could afford repayments if it rises to the level of the cap
- Your rate will fall if the SVR comes down
- The rate is generally higher than other variable and fixed rates
- The cap tends to be set quite high
- Your lender can change the rate at any time up to the level of the cap
These work by linking your savings and current account to your mortgage so that you only pay interest on the difference. You still repay your mortgage every month as usual, but your savings act as an overpayment which helps to clear your mortgage early.
We work in partnership with Independent Financial Advisers, Heron Financial.
We’ll get you home
Heron Financial provide professional services in the fields of mortgage and insurance advice. Their approach is all about you, your needs and ambitions. To them, you’re much more than a customer, and they feel that the journey you undertake together should be a positive one.
The process of buying or refinancing property can be exceptionally time consuming and stressful. The uncertainty of global financial markets and the constant reforms being made by the regulator, to help protect mortgage borrowers interests has only served to make these tasks more complex.Everyone at Heron Financial shares a passion for continual improvement and a personalised approach. For this reason they invite you to meet them or chat over the phone to discuss your own personal circumstances and plans.
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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Heron Financial Ltd is an Appointed Representative of First Complete Ltd which is authorised and regulated by the Financial Conduct Authority.
Heron Financial Ltd Registered address: 35 Church St, Rickmansworth, WD3 1DQ. Registered in England with Co No: 7694062.