Searching for a suitable mortgage can feel a bit like looking for a needle in a haystack. But staying aware of some of the key mortgage mistakes to avoid can help the process go more smoothly.
Choosing the right mortgage
So, what are they? Kevin Roberts, director of Legal & General Mortgage Club, guides us through some potential mortgage pitfalls to keep in mind when choosing the right mortgage in the current market
1. Sitting on your lender’s SVR without checking what else is out there
The SVR, or standard variable rate, is the rate that homeowners often end up on when their initial mortgage deal comes to an end – but this can be more expensive than switching to a new deal.
Roberts says: “Someone that does not look into a new competitive deal could see their annual mortgage costs increasing by as much as £2,500. However, there are currently many affordable mortgage options on the market. So, people should feel encouraged to go and speak with an independent mortgage adviser to lock in a new deal.”
2. Not checking whether the value of your house has increased
Checking your current property value could particularly benefit those on low deposit mortgages. “Many don’t know this, but for existing homeowners, it could even be possible to reduce your mortgage bill simply because of the great house price growth we have seen recently,” says Roberts.
With many having more equity built up in their home, he adds: “Because of this, they could access a lower loan-to-value mortgage, which would charge a lower rate of interest. Anyone who took out a mortgage with a 5% or 10% deposit could benefit significantly, as mortgage lenders offer much lower rates at 80% loan-to-value or lower.”
3. Not comparing deals across the market
Roberts says it’s important to check out the full range of mortgage options available. Independent mortgage advisers will have access to the breadth of mortgage lenders that operate in the UK, which can help borrowers to find cheaper deals and ones offering perks such as cashback.
4. Not considering exit fees
As well as considering the perks when you take out a mortgage, it’s also important to note any early repayment charges. “Our research found that only 13% of borrowers consider these charges, but failing to take them into consideration could mean an unexpected bill in the thousands,” notes Roberts.
5. Assuming you can’t switch if your finances have been hit by the pandemic
“Don’t be afraid to look for a new mortgage if you have been financially impacted by the crisis,” says Roberts. “We found that over half (52%) of borrowers are concerned about lenders scrutinising their finances in the current climate, but there are many options even for these people.
“Mortgage lenders have developed products which are suitable for people on furlough income and those who needed a mortgage payment deferral. Those who have seen their credit impacted should speak with their adviser about how a specialist lender can help.”
6. Forgetting about local lenders
While big high-street names may spring to mind when considering a mortgage, it’s worth checking out what your local lender has to offer.
“Another clever way to find a competitive deal is by looking for regional mortgage offers,” says Roberts. “Some mortgage lenders, like regional building societies, will offer local customers a discount depending on their postcode or loan size.”
7. Not factoring in possible delays
High demand in the housing market, and issues stemming from the pandemic, have prompted some delays in processing paperwork.
“There are delays to the refinance process at the moment, because of the really high demand we are seeing. Those wanting to avoid a monthly repayment increase therefore need to start speaking with an adviser well ahead of the time that their mortgage is due to end,” says Roberts.
8. Not getting ‘mortgage ready’
This may be a particular pitfall for first-time buyers, who haven’t gone through the process before.
Roberts says being ‘mortgage ready’ means having paperwork and documents in place, as well as understanding or maybe improving on credit scores, to maximise the chances of being approved. An adviser can help to work out, based on the deposit amount, what a mortgage lender is likely to let you borrow.
9. Not considering a bigger deposit
Many 5% deposit deals have recently returned to the market, in a boost to first-time buyers. But Roberts cautions: “While it might be attractive to opt for at 5% deposit mortgage because it keeps the up-front cost down, a borrower would likely pay much less in interest if they could save a bit extra and secure a 10% deposit mortgage. This would potentially mean saving thousands in interest payments over the lifetime of the loan.”