FALLING for a simple mortgage mistake could potentially cost you hundreds of pounds a year.
It’s a good time for buyers and remortgagers right now as lenders are locked in a battle to slash mortgage rates. But experts are warning you could fall into an easy trap that will end up costing you more – here’s how to avoid it…
If you’re buying your first home or coming up for remortgage, it can be tempting to “time the market” – which means putting off finding a new fixed-rate deal in the hope that rates will get lower.
Getting a lower mortgage rate not only reduces your monthly repayments, but lowers the amount of interest you pay over the term of the loan – which means more money in your pocket.
That’s especially true when it looks like lenders are on the verge of a pricing war.
This week, a whopping six lenders have slashed their mortgage rates in the space of 24 hours.
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They include one of the UK’s biggest lenders, Nationwide, which cut its two-year fixed rate at 90 per cent loan-to-value to 4.99 per cent.
But experts say the biggest mistake they see home buyers and those remortgaging make is trying to time the market to snap up a mortgage deal at the lowest price.
Craig Fish, director at Lodestone Mortgages, says he’s seen buyers attempt to do this for the last 25 years.
However waiting for the perfect moment for mortgage rates to fall to their absolute lowest “isn’t a strategy, it’s a gamble”.
He says: “Nobody rings a bell at rock bottom. You only know you’ve missed it once it’s gone.”
Mortgage rates are notoriously tricky to predict and even the experts can get it wrong.
Doug Miller, director at Lansdown Financial Services, says trying to work out where rates will go next is “a bit like trying to predict the weather months in advance”.
That’s because rates can rise or fall unexpectedly depending on a number of factors.
Fixed-rate mortgages are priced using swap rates, which reflect what financial markets expect will happen to interest rates over the next two to five years.
These can be influenced by factors like global conflicts, fluctuating food and fuel prices, higher inflation or government policies.
If inflation is expected to rise, central banks (such as the Bank of England) might raise interest rates to make it more expensive to borrow money and discourage people from spending.
That then means mortgage rates rise too, and your monthly payments will become more expensive.
Waiting around could cost you MORE money, and your perfect home
If you’re waiting for rates to go lower, you could end up paying more if they begin to rise again or you miss out on a good mortgage product.
Aaron Strutt, from the broker Trinity Financial, says mortgage rates do look like they’re heading downwards right now.
“But if something happens to the global economy or there’s a particularly poor government decision, it can result in sudden price hikes and dramatic changes to the mortgage market,” he said.
These price hikes can happen very quickly, before you’ve had much time to react.
At the start of the year, it had looked like mortgage rates were heading downwards.
But after the Iran war broke out in late February, lenders suddenly pulled nearly 500 mortgage products off the shelves and rates hit their highest level since last August.
The average rate on two-year fixed deals had risen to a huge 5.75 per cent by the end of March, compared with 4.83 per cent in January.
If you’d been waiting for rates to fall further at the start of the year, you would’ve had a nasty price shock.
Someone taking out a £200,000 mortgage with a 25-year term in January would’ve had monthly payments of £1,149 a month.
But if they had waited until March, they would’ve seen the payments jump to £1,258 per month.
That’s around £109 a month, or £1,305 a year, extra.
You can lock in current deals, often up to six months before your current deal ends.
So there’s nothing stopping you from fixing a new deal now, and then if rates do fall in the next six months, you can swap to a cheaper deal.
Just make sure you – or a mortgage broker, if you have one – keep a close eye on the market in the meantime.
That means there’s little harm in locking into a deal early on, as long as the monthly payments are comfortably within your budget.
Delaying choosing a mortgage deal could also mean you miss out on a good mortgage product.
Mr Strutt said: “If a lender has a good mortgage product one day or a decent home buyer incentive scheme, if you’re unlucky, it may not be there the next day.”
You could also miss out on the home you want if you wait too long.
So when is the perfect time to buy?
Doug Miller, director at Lansdown Financial Services, says it’s when you’re financially ready.
“For most buyers, securing a mortgage that is affordable today is far more important than chasing the absolute lowest rate,” he said.
Meanwhile Nicholas Mendes, mortgage technical adviser at John Charcol, says: “Anyone remortgaging should secure a rate now… For buyers, if you see a property, you like and it’s affordable, don’t delay.
“Holding off in the hope of a slightly cheaper rate risks missing out on the right home altogether, and that disappointment tends to outlast any small saving on the rate.”
What has been happening with mortgage rates?
LENDERS have been slashing rates this week and there could be more cuts to come.
Nationwide led with cuts of up to 0.19 per cent on its fixed-rate mortgages and 0.12 per cent on its tracker deals.
Virgin Money slashed up to 0.16 per cent on its two-year fixed remortgage deals.
Halifax and BM Solutions took 0.15 per cent off their core mortgage ranges, while GB Bank reduced its buy-to-let range rates by 0.3 per cent.
And Lloyds has launched a new Loyalty Premier mortgage range with a discount of 0.2 per cent for borrowers who have one of its Premier current accounts, which costs £15 a month.
However, this doesn’t necessarily mean we’ll see rates plummet over the coming weeks.
Martin Rayner, financial adviser at Compton Financial Services, said: “Six lenders cutting rates this week is a positive sign, but I do not expect mortgage rates to fall as quickly as they rose.”
Swap rates jumped after the Iran conflict and are still around 3.9 per cent, compared with around 3.3 per cent before the unrest.
But Mr Rayner added: “There is an old saying that prices go up like a rocket and come down like a feather.
“I think that is exactly what we will see in the mortgage market over the next few months.”
Craig Fish, director at Lodestone Mortgages, said there is also uncertainty because the Bank of England has held its base rate at 3.75 per cent for months now.
It’s unclear where interest rates could go in the coming months, and Mr Fish said “economists can’t agree on what’s next”.
How to get a good deal on your mortgage
There are several ways to land the best deal.
Usually the larger the deposit you have, the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon, it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – just compare the costs first.
To find the best deal, use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
My clever method could save you £25,000 on your mortgage bill
SARAH Tucker, who is a money expert and runs The Mortgage Mum, has formulated a clever plan to pay off her loan early that anyone can follow.
You just need £30 a month – the price of a takeaway – and you could save a sensational £25,000 on your mortgage.
Being mortgage-free is a dream for most homeowners, and the route to getting there quicker is to make overpayments on your loan.
Many people do this by either increasing their monthly direct debit or making one-off lump sum payments whenever they have spare cash.
Sarah, 41, who lives with her husband and three children in a three-bedroom house in Leigh-on-Sea, Essex, has concocted a plan to build up a big savings pot speedily so she can pay off her mortgage quicker by investing in the stock market.
The idea is that your investments will often grow quicker than your mortgage interest will accrue, so your money is working harder.
That’s because stocks historically have returned about 7 per cent per year, while the average interest rate for a two-year fixed mortgage is currently 5.73 per cent.
Sarah wants to leave her cash invested as long as possible, as the more time you leave your money in the stock market, the more time it has to grow.
She’s investing a huge £3,000 into the stock market each month to turbo-boost her pot.
While she knows the majority of households are not fortunate enough to have this amount of spare cash to hand, she says it’s entirely possible to follow her plan with just £30 a month.
“Even a small overpayment is great because it’s amazing how quickly the savings can stack up,” Sarah says.
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