Martin Lewis: A warning to everyone with a mortgage

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New mortgage deals are at their LOWEST EVER rates, with two-year fixes down to 0.94 percent and five-year fixes at 1.14 percent (though beware of hefty fees). This ferocious lending competition for the best customers means that, for some, remortgaging – switching deal without moving property – can result in phenomenal savings.

Delays are rife – act in time to avoid a rate hike

The house-buying boom means brokers, lenders and conveyancing solicitors are in massive demand. This means things can take months longer.

Those on fixed or discount deals therefore need to start three to six months earlier than normal to sort this and avoid being bumped onto a more expensive standard variable rate.

It isn’t about the cheapest mortgage, it’s about the cheapest you can get

The biggest factor here is your loan to value ratio (LTV) – the proportion of the home’s value you’re looking to borrow, eg, if you owe £180k on a £200k home your LTV is 90 percent.

Mortgages start at 95 percent LTV but get far cheaper at 90 percent and again at 80 percent and 75 percent, bottoming out at 60 percent. Use any savings to push to a cheaper level if you can.

After that, assuming the property is suitable, there are two tests of acceptance.

1) Are you creditworthy? A poor credit history can torpedo an application or disqualify you from the cheapest deals. Check your credit file for errors, and try to minimise other applications, excess debt and credit (ie, access to borrowing even if unused) in the run-up to getting a mortgage. For how to check files for free and other tips see my www.moneysavingexpert.com/CreditBoost guide.

2) Can you afford it? Lenders must do strict checks to see if you can afford repayments; not just at current rates, but stress-testing how you’d cope if they rocketed. They want evidence of income, bills, expenses and sometimes even eating out.

Three steps to help you find a cheaper mortgage

1) Check the best deal your existing lender will give you. It needn’t do affordability checks if you’re not borrowing more. Plus there are typically no or lower fees, and less paperwork. So start here, but AWLAYS carry on to check whether you can beat it.

2) Use a whole of market comparison site to benchmark deals. Use one that covers all deals, including ‘direct only’ (ie, those that aren’t offered by a broker) such as the www.moneysavingexpert.com/MortgageComparison which automatically factors in fees too – as the smaller your mortgage, the bigger the impact of fees.

3) Use a mortgage broker. They can guide you and have exclusive deals, plus they know acceptance criteria unavailable to the public – so can help if you’re struggling with this.

Sites like www.unbiased.co.uk can help you find a local broker. Some top nationwide ‘fee-free’ brokers (paid via commission from lenders) include www.landc.co.uk and www.habito.com. Far more help at www.moneysavingexpert.com/MortgageBrokers

Remortgaging is more difficult if you’ve had coronavirus financial support

For those previously on furlough, the lender will want to see proof of your return to work (eg, payslips). That should be enough.

If you’re still on furlough, that income may not be taken into account – possibly leading to rejection or a smaller mortgage offer.

The self-employment grant can also be a hurdle. Some would-be remortgagers have been told it shows business viability problems and been rejected.

If you’re affected, product transfers from your existing lender and using mortgage brokers are the best routes.

There are others who will struggle to remortgage

Some living in flats with cladding may find lenders requiring an EWS1 form, which can be difficult to get – leaving them locked out of remortgaging. More government help is needed.

Equally, many lenders have tightened criteria for self-employed people. You’ll need rock solid proof of business viability.

And finally, to the 200,000+ existing mortgage prisoners trapped on high rates as victims of the financial crisis: you’ll know I’ve been fighting hard to get you released – it isn’t easy, but I’ve no plans to give up.

Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 7.5 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip

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