Do you have to accept the mortgage deal your lender offers, or is it possible to negotiate – or re-negotiate? In the current circumstances, it’s good to have options
Since your mortgage payment will probably be the biggest expense of your life, and will certainly last longer than any other debt, it pays to negotiate the best deal in the first place, or to be able to renegotiate if circumstances change.
In the current situation, with the property market and the economy generally in turmoil, it can make all the difference if you keep your options open. At the moment, mortgage lenders are basing their offers on interest rates, so they can vary them at any time.
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They can also afford to be choosy about who they offer their best deals to, and Do you have to accept the mortgage deal your lender offers, or is it possible to negotiate – or re-negotiate? In the current circumstances, it’s good to have options with the looming threat of mass unemployment, may be incredibly demanding of any mortgage applicant.
So where should you look for a mortgage or a re-mortgage deal? You can’t actually haggle on mortgage rates, but you can shop around. Price comparison sites and mortgage brokers’ websites are a good starting point. These will allow you to get a feel for what’s on the market. Remember that your existing bank or lender may give you a preferential rate.
Apart from High Street lenders, you should consider online-only banks, and small building societies, which can often be more flexible and understanding of your changing circumstances, such as if you are self-employed.
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Mortgage rates are changing so quickly that a good deal you see one week may have disappeared by the time you actually apply – or it may be better. So keep on your toes. It can be helpful to have the advice of a mortgage broker.
They can advise you both on different types of mortgage, and on which are the most reliable lenders for special circumstances, such as self-employment or if you are in a hurry to seal a deal. You will of course pay for this service, so make sure you know what you are paying for.
The different types and rates of mortgage are often the most confusing aspect of applying for a loan.
Mortgage types include:
- Standard Variable Rate – combines a regular repayment with a variable addition based on interest rates. A risky option, and one which is normally two to five or more percentage points above the base rate, and varying massively between lenders. When your initial mortgage deal runs out, you will normally go onto the SVR – this is the time to renegotiate!
- Fixed rate – the most straightforward type of loan, with a rate which doesn’t vary for the lifetime of the loan
- Tracker rate – tracks the Bank of England base interest rate, so repayments can rise or fall dependent on the base rate. Different lenders will add a different premium to the base rate, perhaps 0.75 percent.
- Discount rate – here you get a discount off the lender’s standard variable rate (SVR). This doesn’t have to vary in the same way a tracker rate does, but on the other hand it isn’t fixed.
An option for savers is a ROSCA (Rotating Credit and Savings Association) which enables groups of first time buyers to collaboratively raise their property deposits together. The first digital ROSCA, StepLadder, also provides specialist knowledge to help its members through the home buying process.
For more conventional options, fixed rates and tracker rates are unlikely to fall any further, as lenders would not be able to make any profit on them, but you can now get offers of around 2 percent on anything from five- to seven-year loans on up to 75 percent of the property’s value, to two year loans on 90 percent LTV.
The figure to look out for is the APRC (annual percentage rate of change), a standardised figure, which shows the overall interest rate for the duration of the deal, including the cost of the mortgage, plus any fees and charges that you have to pay. ■
Martin Roberts Says:
“It’s generally true that while mortgage rates vary from lender to lender, they all tend to charge a higher rate the more you want to borrow compared to the value of the property. This is called the Loan To Value, or LTV. Rates typically rise for every extra five percent you want to borrow – so it can make a big difference to your repayments if you borrow, say 75 percent LTV rather than 80 percent.”
So remember that you don’t have to accept the mortgage deal your lender offers, and it possible to negotiate – or re-negotiate. In the current
circumstances, it’s good to keep all your options open.
This feature was first published in Property & Home with Martin Roberts, Winter 2020 – read more here.