Headline mortgage rates – not always about the cheapest

Although there are a bewildering array of products available once more, the current crop of low rates are still aimed at a distinct pool of borrowers who have a large deposit or equity, a perfect credit score and a steady employed income.

For these A1 borrowers, even with the new affordability rules brought in by the Mortgage Market Review, (MMR) in 2014, there should actually be no issue obtaining low rates.

In some cases however, this means moving quickly as some lenders have introduced a new trend of ‘flash sales’ – products that are only available for a certain period of time, for example 10 days. This has become more popular over the past couple of years as lenders find it an effective method of getting in quality business in a short space of time and withdrawing before their service levels begin to suffer as a result.

Whilst lenders’ service had improved somewhat over the past year (although in recent times it seems to be deteriorating again), the issue for many going direct to a bank branch is still the waiting time for an appointment with a mortgage adviser, with two to three weeks seemingly still quoted in certain areas. Whereas a Professional Mortgage Broker can often be seen with an Agreement in Principle obtained 24 hours later.

The good news is that the mortgage war that has been raging between lenders over the past few months has started to spread to other areas of the market, for example those with only a 10% or 15% deposit can also now access some very competitive products once more.

The biggest issue for many is now proving affordability, as lenders must now not only confirm you can afford the mortgage, but also on a “stress tested” higher rate which is often around 3% higher. This stress test may not apply on a longer term fixed over 5 years or more, which is worth considering for those borrowers who want more long-term security.

The current affordability rules have made it more difficult for those with children who are paying out on child care or school fees, whilst prospective borrowers should look carefully at their bank statements and assess what expenditure is absolutely necessary before applying for a mortgage. Budgeting accordingly as if you had a mortgage for at least 3 months before you apply is good practice to get used to the new regime.

The frustrating aspect is that there are still some borrowers who will be enticed in by low headline rates and end up disappointed. This is especially common from lenders with the very lowest products; those who are, for example, self-employed, on a contract or just simply older borrowers may not fit the lenders criteria.

Whilst there are still too many decent borrowers who are finding it difficult to obtain these very low products, the good news is that there are other lenders around who will lend and on rates that are still highly competitive.

It is also worth mentioning the fees that lenders charge on some of the very lowest products, which can be expensive. In some cases it is actually better off looking at a slightly higher rate with a lower fee which may prove to be cheaper over the initial term of the deal overall.

There are a wealth of other fees, penalties and criteria points that should be taken into account when looking for the right mortgage, so borrowers should not be disheartened if one lender with the very lowest rate is unable to assist.

It often transpires that this may not have been the best product to fit your personal circumstances in any case and there is usually a lender more suitable and willing to help out there at rates that, at the moment at least, are still highly competitive.

In other words, never assume that you cannot get a mortgage because whatever your circumstances, no matter how you are paid or however “non-standard” you think you are; you may be pleasantly surprised by what is actually on offer. There is much more to this than an online best buy table or your local bank branch.

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