For example, research from Legal & General Mortgage Club reveals that only 13 per cent of borrowers see early repayment charges (ERCs) as an important consideration when taking out a mortgage. Yet a borrower with a £250,000 mortgage who locks into a five-year fixed rate and then decides to exit early, may have to pay £10,891 in ERCs, so it can be an expensive mistake to make.
Most fixed-rate mortgages come with ERCs which decline over the term of the fix. If there is a chance that you might move during the fixed term, it could be worth opting for an ERC-free deal. Not fixing for longer than you are absolutely sure about – taking out a two-year fix rather than a five-year deal or longer – could also reduce the chances of paying ERCs. You should also check whether the mortgage is portable – can you take it with you should you move? Otherwise you may be stung by those ERCs.
Other things to look out for are costs and fees associated with the mortgage. There may be an arrangement fee to pay, and some deals come with incentives such as free valuation or legal fees. When choosing a mortgage you should work out the total cost over the fixed or discounted period, including fees, to ensure you are comparing like-with-like when looking at other deals. While the cheapest rate is a strong motivation when taking out a mortgage, there may be other issues which are as important, such as the need to move quickly if you are in a bidding race for a property. If you choose a ‘best buy’ mortgage, you may find yourself dealing with a lender which is swamped with business and can’t process your application quickly. A broker will be able to identify those lenders which can move quickly, while at the same time offering a competitive rate.
Likewise, if you are self-employed, have retained profits in your business, or are a day-rate contractor, the lender offering the cheapest mortgage may not be the right one for you. They may not properly understand how you are remunerated, affecting the size of mortgage you can get. This is where advice from a whole-of-market broker such as AWS Private Finance can help. We specialise in dealing with borrowers with more complex income streams and know the best lenders to approach to get the right funding – get in touch for more information.