The difference between an average and a good mortgage deal can be worth thousands of pounds over a few years. You cannot control interest rates in the wider economy, but you can control how attractive you look to lenders and how carefully you compare. Here is a practical approach that works whether you are buying your first home or remortgaging.
Step 1: Understand how lenders price risk
Lenders set rates according to how risky they believe a loan is. The two biggest factors are your loan-to-value (LTV) and your credit profile. LTV is the mortgage as a percentage of the property's value. Rates usually step down at tiers such as 95%, 90%, 85%, 75% and 60%. If you are just above a tier – say 86% – increasing your deposit slightly to reach 85% might give you access to a cheaper range of products.
Step 2: Get your credit file in shape
- Check your reports with the main credit reference agencies – you can do this free.
- Make sure you are on the electoral roll at your current address.
- Correct any errors and close unused accounts you no longer need, but avoid opening new credit in the months before applying.
- Keep credit card balances low relative to their limits and pay everything on time.
Step 3: Know what you can afford
Lenders assess affordability using your income and outgoings and stress-test whether you could cope if rates rose. Gather recent payslips, bank statements and, if self-employed, your tax calculations and overviews from HMRC. Use our Mortgage Calculator to see payments at several different rates so you understand your comfort zone before you speak to a lender.
Step 4: Choose the right type of deal
A fixed rate gives certainty; a tracker follows the Bank of England base rate and may suit people comfortable with payments moving. Longer fixes offer longer certainty but can come with larger early repayment charges if you move or remortgage early. Think about your plans for the next two to five years.
Step 5: Compare the total cost, not just the rate
Product fees can be £999 or more. On a smaller mortgage, a slightly higher rate with no fee is often cheaper overall. Calculate the total of monthly payments over the deal period plus fees, minus any cashback, and compare deals on that number.
Step 6: Consider a broker
A whole-of-market mortgage broker can compare products across many lenders, including some not available directly, and can help match you with a lender whose criteria suit your circumstances – particularly useful if you are self-employed or have a complex income. Ask how the broker is paid, whether they charge a fee and whether they cover the whole market.
Step 7: Remortgage on time
When your deal ends you will usually move to the lender's standard variable rate, which is often much higher. Many lenders let you secure a new deal up to six months in advance. Compare a “product transfer” with your current lender against deals elsewhere.
Your home may be repossessed if you do not keep up repayments on your mortgage. This guide is general information, not advice.
