The Broker: Mortgage advice from the experts mouth - 'Is the grass greener?'
Posted on 26 July 2016 by
I’ve been offered a mortgage by one lender, but a new and better deal has come out – can I apply?
With all the speculation about interest rates post the Brexit vote, this is a timely question, to which the short answer is: ‘Yes, you can.’ The other question, though, is should you?
In a high number of cases, the lender we recommend to a client is more down to their lending criteria rather than the rate they offer, after all getting the mortgage is the first priority for a would-be borrower, and since the introduction of the Mortgage Market Review (MMR) in 2014, applications have become far more forensic. It’s highly unlikely, should a lender be offering a five-year fixed rate at 0% – if you don’t meet their qualifying criteria, then it might as well be on the moon for all the use it would be to you.
Speed of service can also be an important factor for many buyers, and the unavoidable delays in switching lenders to chase lower rates would almost certainly cause issues with the rest of the chain.
So far, since the Brexit vote, we’ve not seen the reductions in rates that were predicted at the time and lenders don’t seem to be in a hurry to ‘slash’ their rates wholesale. What we have seen so far, is some lenders getting more competitive in certain sectors, such as longer-term fixed rates, for instance, Coventry’s new 10 Year Fixed rate at 2.39% (50% LTV).
One area you do need to be careful about is how many ‘credit scores’ you have done. Every time you apply for a mortgage, a credit score is carried out by the lender you apply to. Having too many can in itself have a detrimental effect on your score, so lenders will only agree to a smaller loan size, or if the affordability calculation was tight, reject it outright. You also need to check out the arrangement fee being offered. It’s easy to only think of the actual pay rate, but if the new product offers a lower rate, but a higher arrangement fee, it may not be the bargain you think.
If your original lender has reduced its rates, then this should be an easier decision. Switching rates with your current lender shouldn’t entail another ‘credit score’, and as long as the fee isn’t higher, then it should be straightforward. Many lenders allow you to switch products, either at no cost or with a small administration fee. The main thing to remember is that if you’re thinking of swapping to a new lower rate, then think twice before doing so. If something looks too good to be true, it probably is.
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