Choosing a mortgage can be a minefield. With dozens of lenders, and literally thousands of mortgage products in the marketplace, how do you choose which is the right home loan for you?
There are several criteria that you can take into account if you’re starting the search for a new mortgage. Here are five criteria to think about when choosing a mortgage lender.
Price
Everyone wants to get the best deal on their mortgage. So, one of the best places to start looking for a lender is in the ‘best buy’ tables. Rates differ wildly from lender to lender, and so it can pay to shop around.
Remember that it’s not just the headline interest rate that determines the cost of your mortgage deal. Always find out whether there are any fees associated with a deal – you may have to pay an arrangement or booking fee – and there may be other charges to consider.
For example, on a small mortgage you are often better off choosing a slightly higher interest rate if there are lower (or no) fees attached.
Additionally, there may be other aspects to your preferred mortgage deal. Perhaps you’re looking for flexibility to make overpayments, or you’re looking to offset your savings against your mortgage balance? Make sure you take these factors into account when doing your research.
Head online to find the best mortgage deals, or use the ‘best buy’ tables in the major newspapers.
Service
Unsurprisingly, the very best mortgage deals are popular with borrowers. What this can often mean is that a lender offering a great deal will experience a spike in the number of applications they receive, and it may take them significantly longer to process those applications.
If you have to move quickly – maybe you are in a chain or there have been other offers on a property – then you might risk losing the property if you don’t get your mortgage offer quickly. In these circumstances it can pay to deal with a lender that offers good service standards rather than simply going for the lowest rate. There’s no point trying to save a few pounds a month on your mortgage if the lender’s poor service means you lose the property in the first place!
Additionally, establish whether you can deal with a lender in a way that suits you. Do they have a branch nearby where you can meet a mortgage adviser? Or, is there an online application service?
Loyalty
There can be compelling reasons why you might want to choose a mortgage from a company with whom you already have a relationship.
For example, some banks and building societies offer their best mortgage deals to existing customers. So, you may benefit from an exclusive deal if you approach your current lender (if you already have a mortgage) or your bank account provider.
If you are tied in to a fixed or variable rate deal with your existing lender then you may have no choice but to remain loyal, otherwise you could face significant early repayment charges.
Underwriting criteria
One of the major mistakes that borrowers make is to chase low interest rates without first checking whether their mortgage application is likely to be accepted.
Many of the very lowest rates have the strictest application criteria. You may find that you’re not eligible for a best-buy 2-year fixed-rate if, for example, you have only been self-employed for a couple of years. You may also struggle to get the deal if you have a less than perfect credit record or you receive a significant proportion of your income from investments, bonuses or a pension.
Each lender has its own underwriting criteria and you may find that only a limited number of lenders will consider your personal circumstances. In these cases, it’s much more important that you find a lender that can actually help you than it is to chase the very lowest interest rate.
You may have to speak to a range of lenders to determine which of them are prepared to consider your application based on your income, outgoings and credit score.
In addition, different lenders deal with affordability in different ways. You may find that you can get a higher mortgage with one lender than with another, simply because they have slightly different lending criteria. If you’re pushing your borrowing to the limit, this could make a substantial difference to the amount that you can borrow.
Ask someone else to choose for you
If you’re not sure which lender will consider your circumstances, or which product is the most financially beneficial, you could to leave the choice of lender to a professional.
An independent mortgage broker takes all the above criteria into account when recommending a lender and a mortgage product to you. They will:
- Find a lender whose underwriting criteria means it is likely that they will accept your application. Many brokers have direct underwriting contacts at banks and building societies which allow them to talk directly to an underwriter to determine whether they will consider your personal circumstances.
- Establish the current service standards at a lender and whether your mortgage offer will be produced in the timescale that you require.
- Work out the relative costs of various mortgage produces – taking into account fees and charges – to find the most appropriate product for your specific needs.
Some brokers receive a fee from a mortgage lender once your mortgage has completed while others may charge you for their services. Even if you do pay a fee, a broker will take the searching, hassle and worry out of your mortgage application. Many borrowers find that the process is much simpler and less stressful when a professional is involved.