With more than 7,000 types of mortgage on offer in Britain, would-be borrowers are at the mercy of lenders and buyers to ensure they get the best deal for their circumstances. But in such a competitive market, some lenders left borrowers on out-of-date or inappropriate rates. Even when the Financial Ombudsman Service ordered Halifax, Abbey National and other lenders to compensate borrowers they refused, unless borrowers made complaints.
Any mortgage lender who is a member of the Council of Mortgage Lenders will comply with an industry-wide code of practice, but that still leaves more than 100 other providers to choose from. Personal recommendations can help, but although a recommended provider may be highly competitive for your friends they may be wrong for you.
First, you must decide whether you wish to play safe with a repayment mortgage or to chance your arm with an interest-only one, making monthly interest payments but repaying the capital through a separate investment vehicle such as an endowment policy, Isa or pension.
Your attitude to risk will also help determine the type of interest rate option you choose. Fixed, variable and capped rates are basic choices. Nowadays, you can also have flexible mortgages that enable you to make underpayments and overpayments and to take payment holidays without penalty.
Current account and offset mortgages go a stage further, providing a single rate of interest for your savings and your mortgage. Ray Boulger, senior technical manager at the national independent mortgage broker Charcol, says: "These can be good value for certain people, but not for everyone. Whether you benefit depends on the frequency with which you use the facility, as well as on the rate you are charged."
When a lender appears attractive for the type of mortgage you require it is important to look well beyond merely the headline price. Attention should be paid to factors such as redemption penalties, set-up costs, whether interest is charged daily or annually and how competitive the variable rate has been. Treat so-called "special offers" with caution. There is no guarantee they cannot be bettered and there may be catches in the small print.
David Hollingworth, adviser at the independent mortgage broker London & Country Mortgages, says: "Stay well clear of special deals that tie you in beyond your initial incentive period, because although the rates may look tempting the exit penalties can be steep. If you avoid locking yourself in you can keep your options open and continually make reviews. Theses days, it is common to switch mortgages every couple of years."
Most lenders require those with deposits of less than 10 per cent to pay a mortgage indemnity guarantee premium, which will bump up the overall cost by 1.5 to 3 per cent. This cover, which protects lenders who repossess against having to sell at a loss, offers no protection to the homeowner and is well worth avoiding. The solution is to put down a significant deposit or, if this is not possible, to consider lenders who do not require mortgage indemnity guarantee, such as Northern Rock, Cheltenham & Gloucester and Nationwide.
The most effective way of negotiating this minefield of considerations is to consult a specialist mortgage broker to help choose the most suitable deal. Getting the right advice will normally save you money. Big brokers have even negotiated exclusive deals. Again, personal recommendation can be important but you should not go far wrong with large established national firms such as Charcol, London & Country Mortgages and Chase De Vere Mortgage Management. If you are dealing with a smaller firm, check that it is registered with the Mortgage Code Compliance Board. Mr Boulger says: "If they are registered it doesn't necessarily mean they are good, but if they are not registered, they probably shouldn't be in business."
Using a fee-paid adviser rather than one who relies on commission, will ensure the best product for you is recommended rather than the one that pays the most commission. Fees may be up to 1 per cent of the mortgage but commission from lenders is refunded.
* Pay attention to personal recommendations;
* Check lenders are registered with the Council of Mortgage Lenders;
* Look well beyond headline prices and rates of interest.;
* Pay attention to redemption penalties, especially on special offers;
* Try to avoid having to pay for
a mortgage indemnity guarantee;
* Seek advice from suitable specialist intermediaries;
* Check mortgage brokers are registered with the Mortgage Code Compliance Board;
* Deal with lesser known intermediaries on a fee-paying basis.
* Check that equity release providers are in Ship.
* Think carefully about the implications of surrending part of the value of your house.
* Before seeing an adviser ask yourself exactly what you are trying to achieve and whether you really need the money.
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