Mortgage rates have been relatively low recently, and this is something that’s remained amid the coronavirus (COVID-19) crisis. And, this means that some homeowners are able to access big savings, as Martin Lewis pointed out today.
Broadcasting from his home during his regular appearance on This Morning, Mr Lewis suggested that borrowers could look at whether they’re able to cut the cost of their existing mortgage – calling it a “no brainer”.
Asked about reducing mortgage costs, he told This Morning viewers: “Absolutely, that’s the no brainer right now. UK interest rates are at their lowest for 325 years.”
“So mortgage rates are at historic low rates too.
You can get two year fixes from 1.1 percent, you can get five year fixes from 1.35 percent. So if you’re someone who has got full income or even furlough income – although that will be factored when they look at what mortgage income you can get – and a good credit score, you should be checking right now to see if you can cut the cost of your mortgage.”
Mr Lewis went on to highlight some of the fixed rates that may be on offer to some borrowers.
For instance, those with a LTV ratio of under 90 percent, “deals are very cheap,” he said, pointing out: “Two year fixes from 1.1 percent if you’ve decent equity and five year fixes from 1.35 percent.”
He has also said: “The big issue is one of acceptance, if you don’t have much equity in your home (so you’ve a big Loan-To-Value [LTV] ratio) over say 90 percent it will be tough.”
Mr Lewis went on to explain what that means for borrowers in practice, comparing the rates with an example of a person who is currently on a Standard Variable Rate (SVR).
“To put that in perspective for someone on a typical four percent standard variable rate with a £100,000 mortgage that’s a saving of £1,800 per year in repayments, if they switch to a two year fix at 1.14 percent,” the financial journalist has said on the matter.
As well as pointing out the calculators, Mr Lewis explained that a homeowner had been in touch, after cutting mortgage costs by £160 per month.
These savings work out at a saving of almost £10,000 over the fixed period, they added.
The borrower, Sam, wrote on Twitter: “Thanks to @MartinSLewis I try to be financially savvy.
“I’ve just fixed my mortgage for five years, saving £160 per month. Nearly £10,000 saved over the fixed period. Wow.”
He added: “It’s worth checking, everybody should be checking.”
The founder of Money Saving Expert went on to highlight three main steps which could see a person reduce mortgage costs.
This includes getting in touch with the existing lender in order to see what its best deals are.
“As you’re not switching between lenders, you may not need to pay costly fees – and it can set a benchmark for what to beat,” Mr Lewis has said.
Another option is to browse options using a whole of market comparison deals, in order to benchmark deals.
“Use one that includes all deals, including ‘direct only’, those that aren’t offered by a broker,” he said.
This can be done online, such as via Martin’s ‘Mortgage Comparison’ or on websites such as MoneyFacts.co.uk.
Ensuring that fees are thought about is also important, he said.
“Make sure you factor in fees too – the smaller your mortgage, the bigger the impact of fees,” the financial journalist said.
“A good way to compare mortgages is to divide the fee across the discount or fixed period.
“So, a £1,200 fee on a two-year (ie, 24-month) deal is £50 a month – then add that to the monthly repayment.”
Additionally, a person may use a mortgage broker in order to work out what the best deal is.
“As discussed, the issue here is acceptance, not just about your LTV, but also your credit score and lenders will check if your repayments are affordable.
“Currently if you’re on furlough, expect them to use that to calculate your income, which could make things tougher to get.
“And sadly, if you’re in one of the industries which is harder hit, like hospitality or travel, again that can make things tough.
“To help match your characteristics to which mortgages are available is something a good mortgage broker can do, which you can’t do yourself.
“Use a qualified mortgage broker that looks at all deals, and check how much they charge.”