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Published on : February 1, 2022 09:40

How To Find The Best Deal On Your First Mortgage

Making sure you’re on the best mortgage deal is crucial to getting your finances in order. After all, it’s likely to be your biggest monthly outgoing.

Buying your first home is likely to be one of the biggest financial commitments you make. The mortgage deal you choose for your first home can determine the length of term you are paying for, and just how much, so it is important to get it right based on your circumstances.

Mortgages can differ in multiple ways, meaning for first-time buyers, it can be tricky to compare deals and find the best rate.

Comparing mortgage deals by interest rates

When you’re comparing mortgages, the interest rate is one of the most important factors. It can make a huge difference to your monthly and annual payments, as our mortgage interest calculator shows.

Lower interest rates will save you money, but it is important to ensure you pick the right type of deal first. Mortgages tend to be categorised according to the way their interest rates work. These mortgages consist of:

  • Fixed-rate mortgages

More information on these types of mortgages can be found in our first time buyers guide to mortgages.

Interest rates aren’t the only thing you’ll need to consider when comparing mortgage deals. Fees can make a big difference, too, and there are several different types you should watch out for.

What are mortgage fees?

  • Arrangement fees – Also known as booking or product fees. These are paid to the lender for setting up your mortgage. They can vary between providers, ranging from free or into the thousands. Rather than a flat fee, some lenders charge a percentage of the amount you’re borrowing.
  • Valuation fees – Your lender will need to conduct a valuation to check the property is worth what you want to pay for it. If they deem the property well under what you want to pay for it, then they may not loan you the mortgage.
  • Legal fees – These fees are charged to sort out the legal particulars when setting up a new mortgage or switching deals.

Some lenders offer fee-free deals, but the mortgages with the cheapest interest rates usually come with hefty up-front fees.

It can be possible to add arrangement fees to your mortgage balance, but this usually isn’t advisable, as you’ll then need to pay interest on them.

What are the average mortgage valuation fees?

Fees can fluctuate throughout the home-buying process and vary between loan providers. The valuation fee can sit between the bracket of £250 – £1,500, dependent on the value of the property.

Consider ERCs (Early Repayment Charges)

Up-front fees can add to the cost of borrowing, but early repayment charges (ERCs) could sting you further down the line if you choose the wrong fixed term on your mortgage.

ERCs are generally charged on fixed-rate mortgages of five years or longer, and they mean that if you decide to pay off the mortgage early (including by moving home and taking out a new mortgage), you may need to pay thousands in charges.

ERCs can be as much as five per cent of the balance in the first year of your mortgage, before dropping each year thereafter.

It’s a cost to be wary of and factor into your mortgage deal should you find yourself in a position to make an early repayment.

What are APRCs?

When you compare mortgage deals online, you’ll usually see a column called ‘APRC’.

A mortgage deal’s annual percentage rate of charge (APRC) is a calculation of how much you’d pay if you stuck with the deal for its entire term, until you’ve paid off the mortgage in full.

This means the APRC incorporates the initial rate and fees but also the SVR, which you’d be moved onto at the end of the initial deal period.

While it can be interesting to see how deals compare on this measure, the APRC won’t be that useful if you’re planning to remortgage when your initial period ends – which you almost always should.

Banks vs building societies: who offer the best rates?

When it comes to mortgage-hunting, many people start by talking to their own bank – but it would be a lucky (and unusual) coincidence if that was where the best deal was to be found.

In fact, it’s often not banks offering the best deals at all, but building societies – and they’re sometimes ones that you won’t see on your local high street. You can also find that tailored niche lenders offer better rates than anyone on the high street.

How can I find the best deal on my first-time buyer mortgage?

  • Save up a large deposit. Most banks and building societies will offer first-time buyers a 95 per cent loan to value (LTV) mortgage. That is, you only need a 5 per cent deposit and they’ll provide the rest, but a larger deposit will give you access to mortgages with lower interest rates.
  • Don’t spend more than you can afford. It goes without saying, but you shouldn’t bite off more than you can chew. UK banks and building societies carry out affordability checks before offering you a mortgage to ensure you can comfortably keep up repayments.
  • Research thoroughly. That means more than trawling through Zoopla and Rightmove until the early hours. If you spot a mortgage with an incredibly low-interest rate, keep an eye on the fees. If you’ve not lived in the area in which you want to buy, check commuting time and costs and local crime stats.
  • Read the small print and think long term. Bagged a mortgage with a great rate? Have a look at overpayment charges and early exit fees which could sting you later on. The same goes for Help to Buy schemes, they may help you get onto the property ladder in the short term, but will you be able to afford the loan repayments later on?

Edward Mellor’s in-house mortgage experts have helped countless first-time buyers, giving them the peace of mind they deserve when looking for a mortgage. With access to thousands of products across over 50 high street and niche lenders, we can source and tailor the best mortgage rates for your circumstances, and guide you through the process in a hassle-free manner.

For more information regarding mortgages relating to your circumstances, or to book a free consultation with one of our advisors, click here or call 0161 826 2998.

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