Why you should beware the best buy mortgage tables
Mortgage best buy tables highlight the cheapest deals. But there's more to picking a mortgage than the interest rate.
Best buy tables offer a snapshot of the lowest rates available and provide us with an overview of the mortgage market when we come to take out our first mortgage, or remortgage to a new deal.
That’s fine – but don’t get carried away by the juicy deals that are listed in them, because chances are they contain hidden catches, or they won’t be available to you.
While the best buy tables offer a starting point for mortgage hunters, it’s essential you understand their limitations before assuming these deals are right for you.
Don’t forget the fee
Best buy tables in the national newspapers or online almost always list the lowest rate first. But the lowest rate mortgage is not necessarily the cheapest, because extortionate mortgage fees can completely offset the benefit of a low rate and make a deal much less attractive overall. This is explained in more detail in my recent article Get a mortgage for free.
With average arrangement fees topping £1,500 they are a really important part of the total cost of your mortgage, working out at the equivalent of £62 a month over the course of a two-year deal.
This helps to explain why some mortgages with slightly higher interest rates can work out cheaper overall if they come with low fees, or if they are fee-free. The rate and fee have a large impact on your cost, so take both into account.
Luckily, some comparison sites – including lovemoney.com – will allow you to search for suitable mortgages and reorder them according to the overall total cost, including both your monthly repayments and the arrangement fee.
You can check out the best deals in the mortgage market with lovemoney's mortgage tool.
Can you get it?
That five-year fix in the best buy table at 3.69% looks fantastic doesn’t it? And for the lucky borrowers who can access it, it is indeed a great rate.
But unless you have a whopping 40% deposit you may not be one of them, because the very best rates are reserved for those with the largest amount of cash upfront, or the most equity in their home.
This is because the more you have upfront, the bigger the equity buffer between the value of your property and the mortgage you owe on it. And this makes lenders feel a lot more secure, because house prices would have to drop significantly for you to fall into negative equity.
To put it bluntly a lender feels a lot happier about borrowers with equity because they know that if they ever have to repossess your home, they can flog it and still get their money back.
They reward this low risk with better rates – the very rates that top the best buy tables.
So what about the rest of us with smaller deposits? Well, many of the rates in the best buy tables are not for us, but most lenders will be able to offer you a more expensive alternative. Great!
Low rate = tight criteria
OK, so you have found a tasty looking rate with a pretty standard fee that stacks up well on total cost. You also have the required deposit, so everything’s rosy, right?
Not necessarily, because some of the lenders that frequently top the best buy tables are known for having strict criteria when it comes to who they will offer a mortgage and how much they will lend.
These lenders may offer amazing mortgage deals, but they cherry pick the best customers with the best credit profiles and highest incomes to make sure their mortgage book is squeaky clean and their customers less likely to fall into arrears.
While some of the best buy lenders are known for being picky, others are more generous. They all keep their affordability criteria close to their chests, so don’t be put off applying, unless you really can’t afford for any delays. Or speak to a broker who deals with lenders on a daily basis and will know which will be likely to accept you.
The best buy tables are not dominated by the big high street lenders – often quite the opposite. The smaller building societies punch well above their weight in terms of best buy mortgages, with some seriously tempting rates on offer, combined with low arrangement fees in many cases.
This is great news, but with the average mortgage only hanging around for less than a month before selling out or being replaced, it’s important to get in there quickly if you see a good deal. A small building society is likely to have a smaller tranche of funding allocated to each mortgage deal than the banking giants, and when that money has gone, it’s gone.
Move quickly if you want a best buy homeloan, as many have a very limited shelf life.
Check for conditions
Some of the deals in the best buy tables may have certain restrictions, so read the small print. For example, they might be available to remortgagors only, which is no good if you are a first-time buyer or you are moving house. There are even products out that are only available to joint applications from two graduates – talk about specific!
By being so restrictive lenders can tailor their deals to a very niche market that they really understand. In the same way, some smaller building societies will launch deals that are only available in their heartland, to those buying a property in specific postcodes. The lenders know these areas and the outlook for house prices, so they are better equipped to price for risk on these mortgages.
Finally, some deals are only available to current account customers of a bank, or others are dependent on you taking out home insurance from the lender. When you see any best buy mortgage, check all of the criteria before assuming it’s available to you.
More on property and mortgages:
At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email email@example.com for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage