Martin Lewis: A warning for everyone with a mortgage

New mortgage deals are at their LOWEST EVER rates, with two-year fixes down to 0.94 per cent and five-year fixes at 1.14 per cent (though beware of hefty fees). The cause? A perfect storm of...

Ultra-low UK interest rates

A house-buying boom boosted by a stamp duty cut

Banks with a glut of cash to lend as many people built up savings during the pandemic

The result is ferocious lending competition for the best customers. That means, for some, remortgaging – switching deal without moving property – can result in phenomenal savings. As Martin Evans tweeted me: "@MartinSLewis I'm fortunate I've been working at home through the pandemic. I've been able to remortgage and my payments are over £150/mth cheaper."

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

Brokers, lenders and conveyancing solicitors are in massive demand. This means things can take months longer.

So those on fixed or discount deals ending this year, beware. At that point, you’re usually bumped on to lenders’ far more expensive standard variable rates. To avoid that, start earlier than normal to sort this – three to six months ahead – particularly if you’re self-employed or have complicated circumstances.

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 per cent.

Mortgages start at 95 per cent LTV – and availability and interest at this level have improved recently – but it’s still usually far cheaper at 90 per cent, again at 80 per cent, 75 per cent and then bottoms out at 60 per cent of a home’s value. 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 a home loan application or mean you don’t qualify for 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 your file for free and more tips see my www.moneysavingexpert.com/CreditBoost guide.

2) Can you afford it? Lenders must also do strict checks to see if you can afford mortgage 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.

If you’re likely to be close to the wire, being frugal in the months leading up to application is worthwhile.

Three steps to help you find a cheaper mortgage

1) Check the best deal your existing lender will give you. This is known as a 'product transfer'. As your existing lender needn't do affordability checks if you're not borrowing more, it can work out well for some. Plus there are typically no or lower fees, and less paperwork.

So start here, but ALWAYS carry on to check whether you can take advantage of competition to 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 key 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 broker near you. Some top nationwide 'fee-free' brokers (paid via commission from lenders) include www.landc.co.uk and www.habito.com. Far more help, picks and explanation in www.moneysavingexpert.com/MortgageBrokers

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

For those previously on furlough, but now fully back at work, the lender will want to see proof of your return to work, usually via one or more months’ payslips. That should be enough, and things will then work as normal.

If you’re still on furlough or part furlough, lenders won’t automatically exclude you, but many are likely to ignore that income for their calculations – meaning rejection or a smaller mortgage offer.

The self-employment grant can also be a big hurdle for would-be remortgagers. Some have been told it’s evidence of business viability problems (as by applying you declared you needed help) and have been rejected. Yet receiving an earlier grant but not a later one can sometimes be viewed as evidence of a turnaround.

For those affected, product transfers from your existing lender and using mortgage brokers are the best routes to navigate through this.

As for whether those who are eligible, and struggling, should still apply for the fifth grant when it comes, my view is: if you need the cash do it – mortgage savings are usually no substitute for direct cash being paid into your account.

There are others who will struggle to remortgage too

It’s always worth checking if you can get a cheaper deal. Yet not all will succeed. Some living in flats with cladding may find lenders requiring an EWS1 safety certificate (introduced after the Grenfell disaster). That can be difficult to get, sadly leaving some locked out of remortgaging – more government help is needed.

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

And finally, there are the 200,000-plus existing mortgage prisoners, trapped on high rates as long-term victims of the financial crisis. If that’s you: as 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