2,557 mortgages: how to pick the one for you

The number of mortgage deals available is at its highest since 2008. But which one is right for you? Robert Powell finds out...

‘Too much choice’ is not a criticism you may have imagined being levelled at the mortgage market. But nevertheless, it appears that prospective homeowners are currently somewhat swamped with options.

Figures from the financial data site Moneyfacts show that the number of mortgages currently on the market has returned to the level of early 2008, before the banking crisis reached its peak. There are currently 2,557 mortgage deals for borrowers to choose from.

But if you’re planning on taking out a mortgage in the near-future, how can ensure that you plump for the right one?

Well, here are a few tips...

Can you afford it?

It sounds obvious, but before you even think about which mortgage to go for, you need to sit yourself down and take a good hard look at your finances. Ask yourself, can you really afford the darn thing?

Map out your monthly spend using an online budget calculator such as this one from the FSA. Tot up food costs, utilities, phone, broadband and any other regular payments that leave your account each month. This will enable you to get a handle on how much you can afford to spend on mortgage repayments and hence how much you can borrow. You can also make use of lovemoney.com's Tracker tool, which will show you exactly where you are spending your money each month.

But remember, monthly repayments aren’t the only regular costs associated with a mortgage; you’ll also need to pay for building insurance (which is mandatory) and possibly income and life insurance as well. Head over to Buy your first home in four easy steps for some more information about these costs.

Deposit

If you’ve decided that you’re ready to get a mortgage, you’ll probably already have been thinking about your deposit and hence building up some savings for a while now.

The size of your deposit in relation to the amount you borrow (the loan-to-value ratio, or LTV) is one of the key factors that will influence what range of mortgages you can choose from. Going back to the Moneyfacts stats, despite a surging number of mortgage deals, 64% require at least a 20% deposit while only 2% need a deposit of 5% or less.

However the market has started to move back towards the higher LTV end of the spectrum in the last few months. Here are some of the current deals available for borrowers with small deposits:

Yes, there is in fact a 100% mortgage floating around again. However, to get hold of this deal from Aldermore you will need a parent (or ‘backer’) to put up their home as a guarantee for any amount borrowed that is over the 75% LTV threshold. Read Buy a property without a deposit for some more information on this unique deal.

As you can see from the table, in addition to the deposit, there are also fees to think about. Most mortgages will come packaged with valuation fees and legal fees which can stretch up to thousands of pounds. And that’s not to mention any additional estate agent fees or costs associated with making the move.

These charges will obviously also need to be budgeted into your initial deposit sum.

Fix vs. tracker

Once you’ve got an idea of the level of deposit you have available, you should start to think about the type of mortgage you want – a fixed rate or a tracker rate.

Fixed rates do exactly what they say on the tin; guaranteeing you a set rate for a set term.

Tracker mortgages are variable rate deals that are pegged at a set percentage above the Bank of England base rate, rising and falling as it does. Discounted mortgage are similar. However instead of tracking above the Base Rate, they track below the lender’s Standard Variable rate. Discounted deals often throw up very cheap rates - however as the SVR can be altered by your lender at any point, your rate can also change at any time.

As you’ll see in the table below this article, the initial rates on tracker mortgages are usually cheaper than their fixed equivalents. However you should only opt for a variable deal if you’re absolutely positive that you’ll be able to make the repayments should your rate rise one, two or even three percentage points. Indeed, tracker mortgages will always be something of a gamble.

If you’re running on a very tight budget, you’ll always be better off opting for a fixed deal. That way you can guarantee your rate and get a solid idea of your monthly budget.

Term

The mortgage term is the length of time your deal runs at a set rate before it reverts to the lender’s SVR. Fixed rate deals usually come in two, three or five-year terms, although a 10 year fixed priced at 3.99% has recently entered the market, as well as a set of competitively priced six and seven year deals from the Chelsea Building Society.

As you would imagine, you’ll pay more to fix for longer. But again, the term you choose should depend more on your own situation than the markets. Guaranteeing your rate for five or even ten years may seem tempting. But if you’re not 100% positive that you’ll stay put in your property for that length of time, you could find yourself faced with pricey early repayment fees if you try and ditch your deal prematurely.

Tracker mortgages also come in set terms; usually two or three years. (However I’m not a fan of two and three year trackers – read Four reasons not to get this mortgage to find out why.) Or you could opt for a lifetime tracker that will guarantee a set tracker rate forever.

So, now you’ve decided on the LTV, type and term of your mortgage; here are some of the best deals across the market...

More: The best new mortgage deals | Fix for five years at 3.34% | Fix your mortgage at 3.59% for 4 years!