Finding the best mortgage rate in a sea of mortgage deals is hard work. So every month we’ll be showcasing the best deals for you, with input from the mortgage experts at L&C.
Finding the best mortgage rate is critical as it will determine how much you can afford to borrow and how much your monthly repayments are.
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What’s happening with mortgages this February
Despite a continued lockdown across the UK, the housing market remains open. This means that mortgage and remortgage applications can continue as normal.
But there are some delays in processing still at play. This is partly because the stamp duty holiday, which is due to end at the end of March, has boosted homebuyer activity.
Indeed, mortgage approvals for house purchases recently hit their highest level since the financial crisis last year.
There were a total of 103,400 approvals for new mortgages in December 2020, bringing the total for 2020 up to 818,500, according to the latest Bank of England figures.
This was the largest number in any one year since 2007 and a 4 per cent increase on 2019 when there were around 789,000 approvals.
The return of the 90% mortgage
First time buyers had a bad run in 2020 as high loan-to-value products were removed from the market.
According to figures released by comparison site Moneyfacts, there are now around 160 deals available for those with a 10 per cent deposit. This is down from 779 deals in March.
And mortgages cost more for those with a lower deposit too. The average two-year fixed deal has risen from 2.57% to to 3.65%.
So for someone buying an averagely priced home at £200,000 with a 90 per cent mortgage on a two-year fixed deal, over a 30-year term, the monthly cost would be £914.92 – compared to £797.94 if they had secured a mortgage in March.
The good news is that we can see banks returning to lending for those with only a 10% deposit. Halifax, Nationwide, Barclays, Coventry, HSBC, Virgin Money and NatWest have all launched 90% deals this month. This should encourage other lenders to launch products as well. And more choice should eventually mean more competitive rates.
Providing the housing market stays stable, things are looking up.
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However, 95% mortgages are non existent. Those with low deposits will need to continue saving, or turn to investigate shared ownership and Help to Buy schemes.
Getting a mortgage when on furlough
The furlough scheme will now run until end April 2021. And it continues to have an impact on those getting a first mortgage or remortgaging.
If you are about to apply for a mortgage or are part way through, lenders will require a letter from your employer confirming when you are due to return to work and confirmation of whether your salary will be reduced before considering applications. This is likely to add some delay.
Several banks will not take account of any extra income such as overtime, commission and bonuses when deciding affordability.
And some banks will not offer mortgages to people on furlough.
Mortgage holidays extended
It was announced on 31st October that mortgage borrowers who’ve not yet had a mortgage payment holiday will be able to request one at any time in the next 6 months.
If you are already on a payment holiday you could extend it for up to six months.
New and extended mortgage holidays will not show up on your credit report. But be aware that even if it’s not on your credit report, lenders may be able to deduce it from an absence of mortgage payments and use this information when deciding on any future borrowing.
For more details see our guide on mortgage holidays.
Remortgaging in February 2021
Mortgage rates are still low which is good news for remortgage borrowers looking to get a better deal in place.
If you are approaching the end of your current mortgage deal, you can still take advantage of some very attractive rates, irrespective of Loan to Value.
Fixed or Variable rate mortgage?
Some may like the idea of a tracker mortgage to benefit from any future interest rate cut over the lifetime of the mortgage, but it’s important that borrowers understand the terms of any variable deal. Some trackers apply a minimum rate, often referred to as a collar or floor. A discounted rate is pegged to the lender SVR so there’s no guarantee the lender will move in line with base rate in any case.
Fixed rate 2 and 5 year mortgages continue to be competitive.
And there are even 10 year fixed rates at just under 2%.
Borrowers will need to think carefully before jumping in. Early repayment charges on long term deals usually persist throughout the fixed rate period. And while you can port the mortgage if you wish to move, flexibility will be limited.
For example, if top up borrowing is required there is no guarantee that the lender would be able to offer it. That could mean you have to look elsewhere, which would incur an early repayment charge that could amount to thousands of pounds.
Help finding the best mortgage rates
Whether you’re looking for a first mortgage, a buy to let mortgage or want to see if you can get a better deal by remortgaging, use the charts below to browse mortgage rates online.
What are mortgage rates?
Mortgage rates are the rate of interest charged by a mortgage lender (bank or building society). The interest is charged by the lender as compensation for the money they have lent them in order to purchase a property.
Interest rates are determined by the lender in most cases, and can be either fixed (ie remain the same for the term of the mortgage) or variable (where they fluctuate with a benchmark interest rate). Before you compare mortgages, you need to understand the different types. For more information see what type of mortgage should I get?
Help finding the best mortgage deal
The best mortgage deal isn’t just about interest rates. You need to consider whether the mortgage term is right for you, arrangement fees and more.
To get a better idea of the best mortgage for you, use our online mortgage service provided by the fee-free mortgage broker L&C.
L&C can compare the latest mortgage deals for you over the phone, or you can do it yourself in real-time online. Whichever you choose they can help search the market to find you the best mortgage deal, see if you qualify and even help you apply online, doing all the legwork to get you your mortgage offer.