Best deals for home movers
When moving house, you’ll hopefully have a decent equity stake in the property you’re selling so you’ll be in a strong position to secure a cheaper mortgage. We’ve looked at the bank and building society market to find some of the best deals when buying your next home.
We’ll be considering a £300,000 property purchase, borrowing at 60% loan-to-value as the buyer has £120,000 from the sale of their previous home. They’ve chosen a 25-year mortgage term.
It’s crucial to consider the overall cost of a mortgage, and not just focus on the headline rate. There are dozens of ultra-low fee deals, though in many cases buyers will end up paying more because of hefty product fees.
Norwich and Peterborough Building Society offers a two-year fix at 1.19%, although fees of £676 do apply. This mortgage will cost £715 per month for the first two years, representing an annual cost of £8,850. The standard variable rate (SVR) is 4.74%, so repayments will jump after two years.
For a fee-free option, consider the West Bromwich Building Society's fixed rate deal. This offers a rate of 1.59%, meaning monthly payments equal £728 and the annual cost is £8,870. The product is fixed until 28 February 2019 and the rate reverts to the SVR at this point, currently 3.99%.
Fix for longer
It’s possible to lock in a mortgage rate until 2027, which can ensure you know exactly what your repayments will be. These long-term deals are cheaper than ever before, but the security of knowing what you’ll pay for a decade doesn’t come cheap – rates are much higher than with two-year deals.
The cheapest ten-year fixed rate comes from TSB at 2.49% although there is a product fee of £995. That’ll cost £807 per month, or £20,363 over two years. When the fixed-rate period ends in February 2027 monthly repayments will increase to £879 (the SVR is 3.74%), assuming rates don’t change and our buyer hasn’t switched to a better deal.
Alternatively, Woolwich from Barclays has a 2.19% rate with a £999 product fee fixed until April 2024. That will cost £780 per month, or £19,719 over two years. The SVR is 3.74%, implying repayments will increase to £885 in 2024.
In the five-year fix market, Virgin Money leads the way. It is currently offering a rate of 1.89%, fixed until 1 April 2022. Fees are £970 which results in an average monthly cost of £753. Virgin's SVR is currently 4.54%, meaning payments will leap when the fixed period expires.
Coventry Building Society currently has the cheapest variable rate at 1.49%. Monthly repayments are £719 with initial fees of £999.
Alternatively, the Melton Building Society charges 1.50% (discounted from 4.99%) for three years, with £290 fees. The cost over two years is £17,570, if monthly repayments don’t increase from £720. When the SVR takes effect, borrowers will need to repay £1,025 per month, if rates don’t change.
If you’re looking for interest-only options, remember the rules are now a lot stricter and you’ll need to show a well-thought out plan for repaying the capital at the end of the mortgage. Monthly repayments are much lower than with capital repayment, but you'll pay more interest on an interest-only mortgage in the long run.
Not every provider will lend on an interest only basis, so if you’re looking for one it’s best to speak to a mortgage broker. Our mortgage tool can help you get a feel for the rates on offer.
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Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
A loan in which the borrower pays only the interest on the sum borrowed for the life of the mortgage but, at the end of the mortgage term, they still owe what they originally borrowed as this remains unchanged. The advantage of an interest-only mortgage is the monthly repayment is considerably lower than for a comparable repayment mortgage. Lenders generally insist the borrower also invests in an endowment, ISA or pension savings policy that, on maturity, is intended to pay off the capital loan.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.