Embarking on the journey of buying your first home is an exhilarating yet complex adventure. With over 6,000 mortgage deals in the UK market, the path to finding the right one might seem overwhelming. The Guardian’s financial expert wrote a guide to help – here’s a summary.
Fixed Rate or Tracker
For those closely watching their budgets, fixed-rate mortgages offer the peace of mind of consistent monthly payments. This option shields you from the fluctuations of interest rates, providing a stable financial planning ground. However, the costs for new fixed-rate deals have seen an increase after a period of decline.
Tracker Mortgages
On the flip side, if you’re someone who likes to play the odds with the potential lowering of interest rates, a base rate tracker mortgage might catch your eye. These mortgages adjust in tandem with the Bank of England’s base rate, offering opportunities for savings if rates drop. They’re especially appealing if you opt for one without early repayment charges, allowing you more flexibility.
Choosing the Duration of Your Deal
It’s a common scenario: many first-time buyers lean towards two-year deals for their initial venture into homeownership. This choice provides a shorter commitment period, with the possibility to switch to a more advantageous deal if interest rates decline as predicted. Yet, the allure of five-year fixed deals, typically cheaper by about 0.5 percentage points, is hard to ignore. The trick lies in balancing the length of the deal with your future financial plans and market predictions.
Beyond Two and Five Years
David Hollingworth from L&C Mortgages reminds us that the mortgage world is not limited to two or five-year deals. Options abound, from three-year fixes to those that secure your payment rate for a decade or more. It’s all about finding the sweet spot that matches your financial situation and homeownership goals.
Highlighted Mortgage Deals
Virgin Money’s Fix and Switch
Imagine locking in a rate for five years, with the flexibility to switch after just two without penalty. That’s the promise of Virgin Money’s Fix and Switch mortgage, offering a rate of 5.14% for up to 90% borrowing. This deal does come with a £1,495 product fee, so it’s essential to weigh the costs against the benefits.
Perenna – A New Player with Long-term Promises
For those looking into the distant future, Perenna offers the chance to fix your rate for up to 40 years, with the flexibility to exit after five without early repayment charges. Rates range between 4.99% and 6.3%, presenting a novel approach to long-term mortgage planning.
Skipton Building Society’s Track Record
Aiming to assist renters in leaping into homeownership, Skipton’s Track Record mortgage offers 100% borrowing based on your rental payment history. This five-year fix at 5.45% considers your reliability as a renter as a testament to your borrowing capability, though it’s worth noting that new-build flats are off the table.
The Tracker Option: A Consideration
While trackers currently come at a premium due to the stable Bank of England base rate, they remain a viable option for those betting on a rate drop. For instance, HSBC’s two-year tracker for first-time buyers starts at 5.25% plus a margin, dependent on your deposit size.
Family Assistance – A Boost onto the Property Ladder
Several mortgage products facilitate family support in your home-buying journey, some even removing the need for a deposit. Lloyds Bank’s Lend a Hand and Barclays’ Family Springboard mortgage are standout examples, offering competitive rates with the security of a family member’s savings acting as collateral. This approach not only aids you in securing your home but also benefits your family member with interest on their savings.