How to get the best mortgage deal

The property market is looking a lot more positive than it was just six months ago with the Halifax reporting average prices are now up 4.2% over the course of 2009.

The reason for this surprising rebound is clear: mortgages have become much cheaper thanks to much lower interest rates. But regardless of whether youíre a first time buyer or wondering whether you could save money by remortaging on your existing home, it always pays to do your homework in order to get the best deal.

The good news is that according to Moneyfacts, the mortgage information firm, there has been a big increase in the number of mortgage deals available. Since the Bank of England slashed base interest rates to their current record low of 0.5%, the number of mortgages on the market has jumped from 1,209 to 1,624.

More availability means more banks and building societies competing for your custom. But despite the increase in deals, we still have to see whether they are any good. So hereís a guide to the best ñ no matter what your circumstances are.

The question you must ask yourself before committing to a mortgage is whether you want a fixed rate deal. Although many economists expect rates to stay at rock-bottom for a long time to come, others arenít so sure.

As mortgage guru Ray Boulger of brokers John Charcol points out:  ìThe cost of both fixed and variable rates has fallen as a result of some increased competition from lenders. However, the base rate could increase more quickly than many economists predict and on most interest rate forecasts a good tracker will cost less than a comparable fixed rate over at least the next 2-3 years.î

First time buyer Mortgages

If youíre a first time buyer, itís almost certain you wonít have a huge deposit. This automatically means there will be less choice available to you. But the situation is improving all the time. Here are some of the best deals available for both tracker and fixed rate mortgages if you only have a deposit of 20% or less of the cost of your new home.
With less certainty that base rates will stay low, fixed rate deals arenít as good value as they were a few months ago but they do offer the certainty many first time buyers look for.

Fixed Rate Mortgages

ï    The Newcastle Building Society is offering a two-year deal fixed at 3.65% for loans up to 80% of the purchase price but does charge a £894 fee. Less attractive but still competitive is the Chorley & District Building Societyís 4.99% deal but which includes a hefty fee of £145 plus 0.75% of the amount they will lend you.

ï    If you can only manage to find a deposit of 10% or 15%, then you cannot expect such a good deal but the Yorkshire building Societyís offering of a three-year rate fixed at 5.84% for an 85% loan and with no set up fee, looks good value.

Variable Rate Mortgages

Again, without a hefty deposit, itís impossible to get the best mortgage deals available. But just as fixed rate deals have become slightly less attractive, if youíre prepared to take the risk, there are some good variable rate deals available.

ï    Again, the Newcastle Building Society seems to setting the standard with a two-year base rate tracker of 1.99% plus base rate ñ which amounts to just 2.49% at the moment. There is, however a punitive £1,094 fee attached to this and youíll need a minimum 15% deposit

ï    The Alliance & Leicester also offers a two-year tracker for those with a minimum 15% deposit. This charges 3.39% plus the base rate (adding up to 3.89% at the moment). Thatís a reasonable rate but they do charge a whopping 2% of the loan advance as a fee.

These are all pretty decent deals at the moment. But if youíre feeling despondent that youíll be paying a massive fee as well as several times the current base rate, then thereís only one solution ñ save up a bigger deposit.

Thatís easier said than done. But try to beg or borrow to supplement your deposit because here below youíll be able to see just how much you could save:

First time buyer with a decent deposit or remortgaging?

Fixed rate deals:

ï    Even with a deposit of just 25%, the Yorkshire Building Society is offering an excellent two-year fixed deal of 3.59% with a bargain fee of just £195. But if you can scrape together just a little more, the Alliance & Leicester offers a two-year fixed deal of 3.15% plus a 2% fee of the amount advanced.  However, the Leeds Building Society offers an outstanding 2.99% fixed rate for two years and a fee of just £199 for those with a 35% deposit.

Variable Rates:

The best offerings at the moment on variable rate mortgages are on those tracking the base rate, or ìtrackersî as they are known in the trade.

ï    The pick of the bunch rate wise must be the Woolwichís 1.48% plus base rate (adding up to just 1.98%). This is a one-year deal and only available for those with a 40% deposit but it does levy a £999 fee so is probably only worth going for if you are after a big mortgage.  The Alliance & Leicester and Abbey are offering two-year trackers currently at 2.59% and 2.69% respectively for those with 30% deposits. Although offering a slightly better rate, the A&L deal charges a fee of £1,495 while the Abbeyís is available for a fee of £995.

If you canít decide which offers the best deal when factoring in the fee, work out the difference in monthly payments based on the amount you are borrowing, and see whether any difference in the fee will cover this over the length of the mortgage deal.

But as these deals show, the real key to getting a great rate is to have a decent amount of equity in the first place. The huge difference in rates between those with low and big deposits really mean that if youíre a first time buyer, you must do your utmost to save up as much as you can, whilst if youíre re-mortaging, the chances are youíll already have sufficient equity to get one of these better deals.

Compare mortgages and find a better deal.

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