There are 50% more mortgage products than a year ago. Which one is right for you?

When looking for a new mortgage or a remortgage, the choice of lenders can be daunting. Do you go to your own bank? You’ve been banking with them for years, so they’ll bend over backwards for you surely, won’t they? Do you use a comparison site? All the lenders are on these, aren’t they? Nowadays, you even have the option of applying for a mortgage at your local supermarket!

There are lots of lenders and lots of rates available - 50% more products than a year ago - and it is only going to get more complicated. Some lenders will allow you to use your commissions, bonuses and overtime income, while some will only allow 50% of these; some will look at pension payments on your payslip as a monthly commitment and therefore offer you less money, some won’t; there are lenders who will still deduct loan and credit card payments from your income even if you tell them you are repaying them before you complete the mortgage; other lenders will count dependents (children) as a drain on your income and reduce the amount you can borrow.

On top of choosing the lender, there’s deciding on the type of mortgage you want. Do you go for a fixed rate, a tracker rate, a discounted rate or an offset rate? How long should your mortgage term be? Should you fix for 2 years, 3 years, 5 years or 10 years? Is a tracker rate better for you?

The good news is you can save yourself hours of research and worry by using Compass Personal Finance to research the market on your behalf and find the most suitable product. As whole of market advisers, we can recommend the lender and mortgage product that is best for your needs, and take care of the time-consuming application process. This allows you peace of mind and lets you concentrate on your day job while we get on with our job of producing the right mortgage offer for you.

Refused on the grounds of high child care payments

Let me give you an example. I had a call from a couple who were looking to remortgage to raise funds for an extension to their property. They have two children under school age, but are both in good jobs in London, attracting sizeable salaries. But six lenders, including their existing one, had turned them down, as they had child care payments of over £1,500 a month.

We met up and I completed a fact finding meeting. I was confident that the clients had enough disposable income to support the larger mortgage, even if rates were to rise. They both thought it would be a non-starter as, after all, six lenders said they couldn’t help.

However, having been advising on mortgages for the last 15 years and understanding the lenders’ criteria, I knew that there was a high street bank that did not reduce their lending amount if applicants had child care payments, and therefore would lend them required amount.

Thinking through the changes across the years

I also recommended that they took a 5-year fixed rate, as this would still gave them a lower repayment than their current mortgage payment, and, by the time the fixed rate ended, the children would both be in school and their child care costs would be a lot lower. Therefore, even if rates were to rise by then, the impact of the higher mortgage payment would be offset by the lower child care costs.

This is an example of how spending a little time with Compass Personal Finance initially can save our client many frustrating hours in trying to find a likely lender, repeatedly applying and repeatedly being refused. If you’ve got questions around your mortgage or would just like to talk things through, please feel free to give me a call on 01489 578338, I’ll be happy to help.