What mortgage should I get?

Mortgage rates are hitting record lows as lenders start to become more generous with their funds

18:21 24 February 2013

 

Mortgage rates are hitting record lows as lenders start to become more generous with their funds - great news for existing homeowners and first-time buyers alike

 

The number of mortgages approved in December 2012 jumped to 55,578, according to the Council of Mortgage Lenders, compared to 54,011 in November while the average rate paid on new mortgages slipped by 0.07% to 3.65%. 

 

Meanwhile, the government's Funding for Lending scheme is expected to continue to boost credit availability this year. 

Getting the best mortgage could potentially save you thousands of pounds - but the right one for you will depend on a number of factors, including why you want to remortgage and how much you need to borrow. 

 

Here are some common scenarios. 

 

"I am coming to the end of my mortgage deal... " 

 

If your current mortgage deal is coming to an end, now is a great time to find another one. 

 

Chelsea Building Society has launched a two-year fixed rate mortgage priced at 1.89%, which is the lowest rate in history! The fee is £1,695 and you'll need a 40% deposit.

 

If you would prefer to fix for longer, first direct has launched the lowest ever five-year fixed rate mortgage at 2.69%. It comes with a fee of £1,999 and you'll need a slightly smaller deposit of 35%. Find out more in Laura Howard's article. 

 

For borrowers keen to take a punt on interest rates staying low, HSBC has a lifetime tracker mortgage with a current pay rate of 2.38% (that's the Bank of England base rate plus 1.88%) and a £1,499 fee. You will need a 40% deposit.

 

The interest rate is not the only factor to take into account when choosing a mortgage, though. 

 

Remember the fee will also have a big impact on the overall cost of a deal, especially if you only need to borrow a relatively small amount. 

 

It could therefore be worth plumping for a higher rate with a smaller fee, the leading deal of which is Virgin's two-year fix of 2.49%, also in return for a 40% deposit. It has a £995 fee.

 

As ever do your sums. 

 

"I can't raise a large deposit... " 

 

Not everyone can stump up 40% of the value of their home, or of the property they want to buy which is where the cheapest deals lie. 

 

However, there are still some great offers out there for those will less cash upfront. 

 

Yorkshire Building Society's two-year tracker currently priced at 2.44% (or 1.95% above base rate), for example, is available to anyone with a deposit of at least 25% and comes with a fairly typical £995 fee. 

 

For those able to raise no more than 10% of a property's value or purchase price, meanwhile, the best longer-term fix is the Post Office's fee-free, five-year deal at 4.55%. 

 

You can shop around for mortgage deals at MoneySupermarket's mortgage channel. 

 

"I am trying to buy my first home... " 

 

One of the main aims of the Funding for Lending scheme is to help cash-strapped first-time buyers scuppered by the difficult economic backdrop to get that all-important first footing on the property ladder. 

 

Market-leading deals available to help them do that at the moment include Chelsea Building Society's two-year fix at 3.69% with a £1,695 fee, and Yorkshire Building Society's two-year deal with a fixed rate of 3.79% and a fee of £995. 

 

Both these deals can be accessed by those needing to borrow 90% of the purchase price. 

 

It is also still possible to borrow 95% of the property value. More than 10 mortgage lenders offer mortgages at this borrowing level nationally, including Newcastle, Leeds and Nottingham building societies. But interest rates will be more expensive on these deals, often between 5% and 6%. 

 

You can cut the cost by looking at schemes that involve help from your family though. The Woolwich's Family Springboard mortgage for example still only requires the first-timer to raise a 5% deposit but will allow any family member to put down a further 10% of into its Helpful Start savings account, where the money still stay for three years (earning interest). 

 

As the buyer's deposit is now effectively 15%, they will get access to cheaper mortgage rates - the Family Springboard mortgage charges a fixed 4.69% for the three year duration. 

 

Mortgage experts often advise first time buyers on a budget to opt for fixed-rate deals so that they know for sure what their mortgage payments will be - at least for the first couple of years. 

 

"I am moving house... " 

 

If you are currently paying your lender's Standard Variable Rate, or have no penalties tying you into your current mortgage, moving house is also a great trigger to switch to a more competitive deal. 

 

Again, the right one for you will depend on how much deposit you can raise. 

 

Those able to raise 30% of the purchase price of their new home, for example, could go for Woolwich's two-year tracker at 1.89% above base rate, giving a current rate of 2.39%, and with a £999 fee. 

 

But if you have a 40% deposit, the Post Office five-year fix at 2.74% is definitely worth a look, especially as the arrangement fee is relatively low for a longer-term deal at £995. 

 

Bear in mind that although it's possible to move house without switching your mortgage (most are 'portable'), this may not be the case - if you need to borrow a larger amount, for example or if the new property is not deemed adequate enough security for the loan. 

 

You can shop around for mortgage deals for any situation at MoneySupermarket'smortgage channel. 

 

"I am on an interest only deal that I can't renew... " 

 

Interest-only mortgages were a popular way to borrow in years gone by.

 

Now, however, lenders are now much more cautious about deals of this kind and many have either tightened up their criteria or stopped offering them altogether. This has left people keen to switch to another interest-only mortgage, or increase their borrowing, in a potentially tight spot. 

 

The good news is that many lenders will still allow customers on interest-only deals to increase their mortgage debt - with the extra credit borrowed on a repayment basis. 

 

Certain lenders may even consider further interest-only arrangements, depending on your circumstances.

 

For more details on these and other options, interest-only mortgage borrowers can contact our mortgage partner, London & Country for free, independent advice on 0844 209 8725. 

 

Please note: Any rates or deals mentioned in this article were available at the time of writing.

 

The government will today announce plans to save thousands of elderly people having to sell their homes in order to pay for their social care.

 

According to health secretary, Jeremy Hunt, up to 40,000 elderly people are currently forced to sell their homes each year to cope with expensive care bills. 

 

As part of the government's so-called 'fully-funded solution', an increase of upper limits on the amount people pay for care is expected, as well as a hike in the threshold for means-tested support.

 

If you or your family are likely to be affected, here are the answers to some key questions surrounding the social care changes.

 

What changes are planned?

At the moment, anyone with assets (including their home) worth more than £23,250 has to pay for their own care in old age. Under the government's plans, this means-tested support threshold will be increased to £123,000. 

 

It is also expected that the coalition will announce a £75,000 cap on the amount of money you have to put towards your own care. In other words, the state will have to cover the cost of any care above that figure. 

 

However, the cap will only apply to social care costs; the living costs of being in a care home are not included.

 

The anticipated £75,000 cap is also significantly higher than the £35,000 recommended in the Dilnott report, which recommended a ceiling on long-term care costs.

 

While the plans are broadly welcomed, Mr Hunt is also expected to reveal that they will be part-funded by freezing the inheritance tax threshold at its current £325,000 for individuals and £650,000 for couples, until 2018.

 

The assets threshold changes and care cost cap are due to come into effect in 2017, whereas the inheritance tax threshold freeze is already in place.

 

What do the changes mean?

In effect, it means anyone going into care with less than £123,000 worth of assets won't have to pay for the full cost of their care. However, people will still have to pay 'bed and board' (or living) costs, limited to a maximum amount each year.

 

Once someone reaches the care cap of £75,000, the state will pay for their care for the rest of their life.

 

According to DrRosAltmann, director general at Saga, the changes will mean the financial services industry will adapt to help people plan for old age.

 

She said: "The new framework should help people prepare for care. The cost of social care for oneself or ones loved ones needs to be provided for, in a similar way to pension or life insurance cover. 

 

"Currently, most people do not realise what they need to do for themselves or their families. A new framework will help the financial services industry develop products to help people make provision for care needs."

 

Why are the changes being made?

 

Accommodation in a care home costs, on average, between £7,000 and 10,000 per year. The government's plans aim to make support more widely available so that people don't have to sell their homes to pay for care.

 

The increase in the threshold is to reflect how property prices have inflated over the years, effectively freezing out many homeowners under the old threshold of £23,250.

 

It's hoped that the insurance industry will react by developing and offering more products to cover the cost of old age care, safe in the knowledge that the amount payable will be capped.

 

How are the planned changes being received?

 

Michelle Mitchell, charity director general of charity Age UK said: "Social care for too long has been the Cinderella of political priorities, hidden away and ignored. If the media reports are correct, the government will take a welcome step towards bringing older people fairer access to care support when they need it most."

 

The National Pensioners Convention, however, has criticised the plans for not going far enough. General Secretary Dot Gibson says that the £75,000 cap will help just 10% of those who need care.

 

For more on paying for care in your old age, read Laura Howard's article. 

 

Please note: Any rates or deals mentioned in this article were available at the time of writing