Cheap Mortgage Rates in the UK

Cheap Mortgage Rates in the UK - RateWise
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by ratewise

When it comes to the best mortgage rates out there, they include both two and five-year fixed-rate mortgages. Because these types of mortgages are so high in demand, competition between lenders has made rates on both types of mortgages fall drastically throughout the last year. This gives you a chance to find some cheap mortgage rates with a small deposit. 

Choosing the type of mortgage that is best for you

When finding cheap mortgage rates, you need to do it the right way. Before finding the cheapest mortgage rates you are able to get, first you need to decide on several things that include:

Deciding if you want an interest-only or a repaying mortgage

If you choose the interest-only mortgage you need a very detailed plan in order to pay off the debt you have. The reason behind this is because your payments will only be able to cover the cost of the interest.

While a repayment mortgage pays off the original debt with the interest rate, it makes it easier to plan but costs more to repay each month.

The best cheap mortgage rates to choose from are the repayment deals. It is also the one that gives you a higher chance of being approved because most lenders do not offer interest-only mortgages.

Lenders that accept the interest-only option will ask you to provide evidence of a great repayment plan.

Even if you are eligible to get an interest-only mortgage your lender might limit the amount you can borrow even more than if you were getting a repayment deal.

Decide if you’re going to get a variable or fixed-rate mortgage 

It is important to understand that when choosing a fixed-rate mortgage you have the security of being able to know exactly what your mortgage payments will cost for that period.

Throughout the past years, variable rates have been known as the cheapest mortgage rates. But in the present, the fixed-rate mortgage is more preferred.

The cheapest fixed-rate mortgages

If you, for example, are going for a £200,000 mortgage that is worth 75% of the home’s price for 25 years. The interest rate that is advertised is 1.74% that leads to a monthly payment of about £822.62 before switching to the lender’s variable interest rate. 

However, if you choose a three-year fixed-rate mortgage, you will be paying a monthly sum of £830 with a 1.82% interest rate. It is all paid before switching to the SVR that includes fees of £125 and also £500 cashback.

For a five-year fixed rate deal, you can get a 1.64% interest rate with a monthly payment of £813 before standard rates start to apply.

Cheapest variable-rate mortgages

Another option is to choose a variable rate mortgage. It is named as such because the primary thing you pay is the interest rate, while your monthly payments vary.

In some cases, variable-rate mortgages are cheaper than fixed-rate deals. But the catch of a variable rate mortgage is that they come with uncertainty regarding the amount you have to pay each month.

Tracker mortgages

These mortgages track specific economic indicators. Typically, these are the Bank of England’s best rates. This means that if you have an interest rate of 2.5% it also includes the base rate with it.

These kinds of cheap mortgage rates are very popular when rates take a drastic fall but are risky as the rates are unpredictable and might rise in the future.

When choosing these kinds of cheap mortgage rates, you are tied to a fixed loan period. These last for just about a few years but you can choose the full-term option that is known as the lifetime mortgage.

Like any other fixed-term deal, if you need to leave early throughout the mortgage you will be required to pay an ERC (early redemption charge) which is costly. 

If you take out a mortgage for a £200,000 property with a 75% mortgage cover-up of the property value, you can get a tracker mortgage to add a 2% interest rate for just £645 a month. This currently holds the spot for the cheapest mortgage rate. 

Discount mortgages and SVRs

We have technically mentioned SVRs further above and even though they are technically an option, they are not offered to first-time mortgage takers that often.

They are also much more expensive than other types of mortgages. The good side of SVRs is that they offer you a certain level of flexibility meaning that you are not strictly tied into a deal. These mortgages are best for people that have a small loan left to pay.

Discounted mortgages offer a type of variable mortgage that is calculated at a discount to the SVR deal. These kinds of mortgages are not often understood, and they are seen as confusing.

But to better understand these discounted deals let’s take an example. Say you have a 2.5% discount. If SVR is 5% in the meantime, that means you will pay 2.5% interest on your loan.

This is not really secure as the lender can change the SVR whenever they find it necessary.

Make sure you have a saving deposit that covers all associated fees

When picking a mortgage, the interest rate is not the only thing to focus on. There is a whole list of fees that come when you pick a mortgage. These fees include solicitor’s fees, survey costs, stamp duty, mortgage fees, etc. 

Invest towards your equity, especially when you are near an LTV rate boundary

When mortgage rates drop, they drop in steps. This is known as a loan to value band or differently known as LTV. If you have a 9.75% equity, it is best to get this percentage rate up to 10% as it will make it easier for you to pick lower interest rates.

If you find yourself in a deal that is not offering good and cheap mortgage rates you need to understand that you don’t have to stick to the agreement in principle with a lender. 

Cheap mortgage rates depending on your income

When buying your first property the first question that probably comes in mind is how much you can borrow.

Clearly, this varies depending on the lender you choose to get a mortgage from. You can find deals as good at 4.25 times your annual income.

What to consider when comparing mortgages

  • Up-front fees. The cheapest mortgage rates come with fees that cost over £1000. Before choosing these types of mortgages make sure that the lender isn’t corresponding a low rate with a high upfront fee.
  • Cashback. There are some banks that try to persuade you by promising to give you free money. But most of the time the cashback is £500 or less. The free cash you will get does not really make a difference compared with the amount you actually have to pay for a mortgage.
  • ERC (early repayment charges) ERC’s can cost you thousands of pounds. So before choosing a cheap mortgage rate you need to also keep in mind if you can afford certain ERC’s. 
  • The maximum terms of a loan.  Some lenders offer deals with maximum terms that go for up to 40 years. This thins out monthly repayments and makes it easier for you to get accepted. Even though this is going to sound like a cheap mortgage deal, you need to really think through that you will commit to such a long-term loan.
  • Income multiples. These vary depending on the lender. Take advice from a broker if you want to know the maximum you are able to borrow from a lender. 

Talk to a broker to find the cheapest mortgage rates

Brokers are professionals who dig into the market to find you a great mortgage deal. Talking to a broker will save you time in picking the right lender as well as making it easy for you to get accepted for a mortgage.

A broker can also help you to stay protected if things go wrong with the mortgage deal.

Brokers are able to advise you on government mortgage schemes and help-to-buy mortgages. They will tell you if you are eligible for these kinds of mortgages and if it is a good idea to go deeper into them.

The key is to communicate with a broker that you’re comfortable with. It is important that you trust the broker as they are the ones that will meet you with estate agents when house hunting.

The best way to find a good broker is to ask friends or family members who have moved with the help of their broker. The goal is to find a good mortgage broker for a cheap price.

Find a great deal on your next mortgage

Whatever term suits your budget we can help you find a solution. Ratewise can match you with a local broker that knows how to help—regardless of your credit score! Get pre-approved today.

How long does it take for mortgage to be approved?

Generally it can take about 6 weeks for your mortgage to be approved. But it does depend on your circumstances in cases where lenders need more supporting information.

Why is my mortgage application taking so long?

Mortgages are some of the largest loans given out so lenders take their time when assessing whether or not to approve borrowers.

Mortgage applications could be delayed when lenders investigate more details about the borrower’s financial situation.

How can I get approved for a mortgage in the UK?

To get approved for a mortgage in the UK you should keep your finances in top shape months before you apply. Try raising your credit score, minimizing existing debt, and 

What happens when a mortgage is approved?

Once your mortgage is approved, you can go ahead with the purchase of your new home. Make sure you keep paying your mortgage installments on time and in full to avoid any additional fees.

What happens if my mortgage application gets rejected?

If your mortgage application gets rejected it can be disappointing, but don’t lose hope. You should take the next few months as an opportunity to get your finances in order by saving up for a downpayment, eliminating debt, and improving your credit score.

Once you’ve improved your finances, you’ll have a better chance of getting a mortgage the next time around.

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Categories: Mortgages
Tags: UK