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 (LTV) 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.
HSBC, up to 60% LTV, 1.54%
Fixed until 30 June 2019 then reverts to SVR (currently 3.69%)
This mortgage will cost £723 per month for the first two years, representing an annual cost of £8,793. The standard variable rate (SVR) is 3.69%, so repayments will jump after two years. No fees apply.
Platform, up to 60% LTV, 1.73%
Fixed until 31 May 2019 then reverts to SVR (currently 4.74%)
For a cashback option, consider the Platform's fixed rate deal which offers £250 in cashback. This has a rate of 1.73%, meaning monthly payments equal £740 and the annual cost is £8,851. The product is fixed until 30 April 2019 and the rate reverts to the SVR at this point, currently 4.74%. Platform products are only available through mortgage brokers.
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 deals are cheaper than ever before, but the security of knowing what you’ll pay for a long period doesn’t come cheap – rates are much higher than with shorter deals.
HSBC, up to 60% LTV, 1.94%
Fixed until 30 June 2022 then reverts to SVR (currently 3.69%)
In the five-year fix market, HSBC leads the way. It is currently offering a rate of 1.94%, fixed until June 2022. There are no fees and an average monthly cost of £758 - equivalent to an annual cost of £9,138. HSBC's SVR is currently 3.69%, meaning payments will leap when the fixed period expires.
First Direct, up to 60% LTV, 2.49%
Fixed for 10 years then reverts to SVR (currently 3.69%)
The cheapest 10-year fixed rate is available from First Direct at 2.49%, with just a £35 fee. That’ll cost £807 per month, £9,702 a year. When the fixed rate period ends in 2027 monthly repayments will increase, assuming rates don’t change and our buyer hasn’t switched to a better deal.
If you think the Bank of England’s base rate is likely to stay the same or fall then a variable rate could be for you. However, be aware that rates could rise at any time and leave you out of pocket.
Coventry Building Society, up to 65% LTV, 1.35%
Variable for term
Coventry Building Society currently has the cheapest variable rate at 1.35%. Monthly repayments are £707 with initial fees of £999 – this represents an annual cost of £8,537.
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.
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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.
Loan to value
The LTV shows how much of a property is being financed and is also a way to tell how much equity you have in a property. The higher the LTV ratio the greater the risk for the lender, so borrowers with small deposits or not much equity in the property will be charged higher interest rates than borrowers with large deposits. The LTV ratio is calculated by dividing the loan value by the property value and then multiplying by 100. For example, a £140,000 loan on a £200,000 property is a LTV of 70%.
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.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
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.