The average UK house price was £296,000 in October 2022, £33,000 higher than the same month in 2021.
Brean Horne, a personal finance expert at comparison site, NerdWallet, offers some guidance on how to get the best deals on property for those in a position to buy in the current climate.
“Positioning yourself on the property ladder can be difficult, and it is important to understand the financial implications that come with taking out a mortgage, whether you are a first-time buyer or looking to remortgage to purchase your next home.”
“The first thing you need to do before anything is to work out what you can afford and how much you will need to borrow. Using a mortgage calculator can help you estimate how much you can afford on your own and with somebody else quickly.”
“There are several other costs to factor in, including stamp duty, estate agent fees, conveyancing fees, house survey costs, house removals, home insurance and new furniture etc. And depending on the purchase price, this can add up to tens of thousands of pounds.”
“Therefore, to ensure you are best prepared for applying for a mortgage, it is recommended you are not only keeping good track of your financial situation but also that you are looking for the best possible interest rate and mortgage product for your circumstances.”
Important tips to help buyers secure the best possible mortgage rates
Ensure you are financially stable
Your credit score is a significant factor in determining whether you are accepted for a mortgage. With a higher score, you’ll have a better chance of being accepted for the mortgage you are applying for.
Lenders will assess your credit record, which details your experience with credit, from existing mortgages and credit cards to mobile phone contracts and utility bills. This gives them an idea of how well you manage credit and repay debts.
To improve your credit score, ensure you are paying bills on time and working on paying off any outstanding credit card balances, as decreasing your debt will improve your debt-to-income ratio, a key element evaluated by lenders.
Ideally, a DTI ratio for a mortgage is under 36%, so reducing your debt payments will also free up money to save for a mortgage deposit.
Determine what type of mortgage is best for you
Mortgages tend to come in two main forms ‒ fixed rate and variable rate.
With a fixed-rate mortgage, your interest rate, and therefore your monthly repayment, is set in stone for a certain period, despite changes to the Bank of England interest rate (which has been a recent problem for many homeowners).
For example, if you take out a five-year fixed-rate mortgage, then the interest rate on that loan won’t change for those five years. Once that period ends, you’ll move onto your lender’s SVR for the rest of your mortgage term or until you remortgage onto another deal.
A variable rate is more flexible; some rates are called trackers because the rate charged follows the base rate set by the Bank of England.
So if the base rate goes up by 0.5%, will your interest rate and, consequently, your monthly repayment. By contrast, your monthly repayment will fall if the Bank of England reduces the interest rate.
Therefore, if you want to avoid any unwanted increase in your mortgage interest rate, you are better off opting for a fixed-rate mortgage.
Compare rates with several lenders
Shopping around and comparing different lenders can help you find the best mortgage deal for your circumstances. Price comparison websites are a great place to start and can help you quickly compare many mortgages.
Understanding the types of rates lenders offer will help you determine which direction to go. Once you have several quotes from lenders, you can narrow down the list to the ones with the lowest rates.
Apply for a mortgage in principle
With the unpredictability of the mortgage market, it is recommended that you apply for an agreement in principle.
This is a statement from a lender outlining how much they’re prepared to lend you before you formally apply for a mortgage.
While it is not a guarantee, it can help give you a good idea of how much you’ll be able to borrow before making a real application.