The best mortgage
If you're buying a house, this deal should be top of your list! It's the best mortgage around....
Now seems to be a pretty good time to be in the market for a new house. Not only is the mortgage market improving, with deals slowly becoming more competitive, but according to the Royal institution of Chartered Surveyors, sellers are significantly outnumbering new buyers.
That’s great news for buyers for two reasons – firstly, there are more prospective properties to choose from, so you have a better range of choice. And with supply outweighing demand, buyers are in a reasonably strong negotiating position.
So if you are looking to buy in the next few months, the big thing to consider is the financial side – which mortgage to go for. Here are my favourite deals.
My favourite tracker
Bank Base Rate has now languished at its record low of 0.5% for over a year now, and many will argue that the best way to take advantage of that is with a tracker mortgage.
John Fitzsimons looks at the dos and don’ts of arranging a mortgage over the internet.
There is currently a range of spectacularly cheap-looking mortgages available, with an initial rate of less than 2%. The lowest rate in the market comes from Alliance & Leicester, with its two-year tracker deal at Bank Base Rate plus 1.34% up to 70% loan-to-value, giving it a current rate of just 1.84%, while Cheltenham & Gloucester boasts its own mega-cheap deal, tracking Base Rate plus 1.49% (currently 1.99%) for two years, though you’ll need a 40% deposit.
However, what puts me off these deals are the staggering fees you’ll have to shell out to get them – the Alliance & Leicester deal will set you back 2% of the mortgage (that’s £4,000 on a £200,000 mortgage), while the Cheltenham & Gloucester deal costs 2.5% of the mortgage, plus a £99 fee. That’s some serious cash!
Instead, my personal favourite is the mortgage on offer from Santander, exclusively via mortgage brokers, which tracks Base Rate plus 1.95% (currently 2.45%) for two years, but will only set you back £995 in product fees and a 30% deposit.
On a 25-year £200,000 mortgage, your repayments will be £60 more expensive each month, but taking the fee into account, over the first two years you’ll save at least £1,500!
- Watch this video: Sort out your mortgage online video
The term tracker option
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See the guideThere are a number of great looking term trackers, including one from ING Direct which tracks Base Rate plus 1.99% for the life of the deal, and will only set you back £945 in product fees, though you’ll need a 40% deposit.
However, my favourite comes from HSBC, with its term tracker at the same rate as the ING deal, and with the slightly higher fee of £999. However, it’s available to borrowers with a deposit of 30%, making it far more accessible.
- Adopt this goal: Cut your mortgage costs and pay off your mortgage early
The short-term fixed rate
While a super-cheap tracker looks very tempting, I much prefer the security of a fixed-rate mortgage. And there is no more popular fixed-rate deal among British borrowers than the two-year fix, as it allows you to shop around again for a new deal at the end of those two years.
Recent question on this topic
- billykeats asks:
Should I overpay on my Interest Only mortgage?
- SoftwareBear answered "How do you plan to clear the capital sum at the end of the mortgage ? Are you going to use the..."
- MikeGG1 answered "You will be paying 2.94% but interest rates are liable to rise in a few months. I would top up..."
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So long as you have a huge deposit, then Halifax is your best bet, as the bank offers a fixed deal at just 2.79% (though this jumps to 4.79% in year two), and with booking fees of £1,240. However you will need a 40% equity stake, so it won’t be an option for many of us.
Personally, I much prefer the two-year deal from Mansfield Building Society, fixed at 3.09% for two years, which only requires a 25% deposit and the fee of £999. This is as an absolute steal, certainly compared to the two-year fixes at a similar rate of interest from Alliance & Leicester and Cheltenham & Gloucester that require higher deposits and charge extortionate product fees.
My favourite mortgage!
However, as anyone who has ever read my articles will know, I’m a massive fan of fixing your mortgage rate over a longer term, and with mortgages only going to get more expensive when interest rates start heading north, now is just about the perfect time to fix for five years.
Related blog post
- John Fitzsimons writes:
Should you get a fixed rate or a tracker?
With interest rates languishing at record lows, is now the time to take advantage with a tracker, or go for the safe option of a fixed rate?
Read this post
While the rates are noticeably higher than short-term fixed deals, you do have the security of that rate for a longer period, so I reckon it’s worth it in the long run.
What’s nice to see is that there is a range of products on offer, from a number of different lenders, at around 4.5% interest, with varying deposit sizes and product fees.
In my view, the best of the rest comes from Britannia Building Society, a five-year fixed rate at 4.49%, open to borrowers with a deposit of 25% or more, and costing £999 in product fees. Not only is this the cheapest five-year deal, it also is open to more borrowers thanks to its generous loan-to-value limit, and doesn’t boast an extortionate product fee.
However, for first-time buyers without such a healthy deposit, there are still some decent options. There are a host of products available at 80% loan-to-value, charging a little over 5%, though deposits of 15% and less will see you pay a fair bit more.
The best deal that I can find comes from Leeds Building Society, fixed at 5.49% for five years. So long as your mortgage size is less than £500,000, it will cost you £999 to get the product, while larger mortgages will set you back £199 plus 1% of the mortgage advance.
- Read this blog: Should you get a fixed rate or a tracker?
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Comments
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It depends on how you look at it johncolescarr. If you are buying a property as a [i]home[/i] (as against an investment), it actually doesn't matter whether it's in negative equity or not. It only becomes an issue, if (for whatever reason) you can't afford to pay the debt, or through circumstances beyond your control, you're forced to move. Even in these low inflation times, the debt over time, will take care of itself. What seems an insurmountable millstone now, will in 20 years time look like a very cheap rent. In my view, you may as well pay a mortgage rather than rent. At some time in the future, you will own the home and I can tell you from personal experience, when that day arrives, you suddenly find you have a great deal more disposable income available. Sadly, affordable homes are a pipe dream. You may as well bite the bullet (assuming you can) and buy whatever is in your price range. But 30%, even 20% deposits are helping no one.
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@ LastChip, Whilst I agree with you that £30,000 deposit is a for most an unaffordable amount (it is for me), I do not believe that 95% or 100% mortgages are the answer. I can say this from personal experience as I took out a 100% mortgage in 2007 and even through heavy overpaying I am still in and out of negative equity depending on the house valuation and unable to move or switch my mortgage. I think 10% is a the minimum amount of "buffer" required to stave off such problems. The real answer to affordability is the provision of affordable homes. For as long as the average house price remains out of the reach of typical household budgets then home ownership is going to be hard as simply borrowing more money and/or extending the mortgage term, does not provide a cure, but instead just increases the burden on the homeowner to repay as in the end the money will need to be repaid if full. If there were provision of starter homes at sensible prices, say 4 times the average wage, (not 8-10x as is the case at the moment), this would give people the opportunity to build equity in their homes and if their cicrumstances change then thay can progress to a bigger and better home.
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I have to say, this is a very disappointing article. Please get into the real world. All these deals are only viable for people that already have substantial equity in their present homes. There can be only very few that could afford a 30% deposit, starting from scratch. The lowest deposit you quote is 20%; to remind you, that's £20,000 for every £100k borrowed. Even a modest first property at say £150,000 would need a deposit if £30,000. Who can save that kind of money [i]and [/i]live day to day as well. And that's not to mention probably another £2k on top for solicitors etc. Even a £15,000 deposit (10% of my example) would be no mean feat for those on an average wage. In real terms, these are [i]not[/i] good deals. They smack of a frightened lending regime, that's terrified of loosing a few pounds. It's a typical overreaction to a self made mess, due to improper scrutiny of borrowers. If someone can afford to pay back the loan, why not give them 95% or even 100% as has happened on a limited basis already? Affordability is the key and other than the trust you assign to a borrower, should be a primary factor in the decision to lend or not.
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23 April 2010