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Finding a Mortgage Deal

By: Louise Smith, barrister - Updated: 30 Aug 2010 | comments*Discuss
Mortgage Re-mortgage Borrowers Lenders

After years of relatively easy credit, mortgage deals are now much thinner on the ground. Whilst frustrating for first-time buyers keen to take advantage of falling property prices and interest rates, this can be disastrous for borrowers stuck with an uncompetitive mortgage or facing the threat of repossession.

For many mortgage lenders the rules of engagement have changed. Reeling from the consequences of the economic downturn and faced with low returns on tracker mortgages, lenders are now much more wary about offering new deals. However, there are mortgage deals out there and the trick for borrowers is knowing where to look and how to make themselves attractive to lenders.

Deposits and Mortgage Deals

Towards the end of the boom years increasing numbers of lenders were offering mortgage deals which provided advances of 95% or 100% of the property’s value. Some lenders would even offer mortgages which exceeded the value of the property on the assumption that property values would continue to go up. Those sceptics who thought such deals were a recipe for disaster have been proved correct and such deals are now virtually non-existent.

For first-time buyers, the key to finding a mortgage deal is having a decent deposit – preferably of at least 25% of the value of the property. To some extent, the larger the deposit, the better the mortgage deals that will be available. If the lender can see that the borrower is making a substantial financial commitment to the property themselves, they will feel more confident that the mortgage loan will be repaid.

Equity and Mortgage Deals

Borrowers seeking to re-mortgage will find themselves in a similar situation to first-time buyers. The greater the equity they have in their property the more likely that they will be able to find another mortgage deal. Homeowners who bought towards the end of 2007 when property prices were peaking, and especially those who bought without a substantial deposit, may find that they now have little or no equity left in the property.

Any steps which can be taken to maximise the equity in the property will increase the chances of finding a re-mortgage. Borrowers who have seen the monthly instalments on their mortgage fall due to a reduction in interest rates might explore the possibilities of paying down the capital on their mortgage. Any additional funds available could also potentially be used to carry out judicious home improvements that may increase the value of the property.

Using a Mortgage Broker

A 'whole of market' mortgage broker may be able to help borrowers find a mortgage deal which they would not otherwise come across. Such brokers either have access to the full range of mortgages available or to a representative selection.

Prospective borrowers should check that the broker genuinely has dealings with all mortgage lenders to ensure access to the widest selection of mortgage deals. Because mortgage deals are so varied, and can be confusing at the best of times, using a whole market broker can be a useful way to pinpoint the right deals. Some mortgage brokers charge an up-front fee but it should also be possible to find a broker who gets paid by the mortgage company upon completion of the loan.

Using a mortgage broker may be particularly helpful for borrowers with a poor credit history or other issues which make them less attractive to a mortgage lender – such as the self-employed or those with erratic income patterns.

Not all mortgage deals are made available to mortgage brokers – some lenders offer their most competitive deals to existing customers or to prospective borrowers who approach them directly.

Researching Mortgage Deals Online

There are many websites which allow users to input their particular requirements into a search engine and then provide a list of suitable mortgage deals.

This approach will not be a guaranteed way of finding a mortgage because the final decision of the mortgage lender will depend on the specific details of each application. However, by familiarising oneself with the mortgage market – and gauging what mortgage lenders are offering and looking for in customers – prospective borrowers are more likely to be able to make an educated decision about which mortgage is right for them.

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