Martin Lewis: A Warning to Anyone With a Mortgage | Personal finance | Finances

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New mortgage contracts have the lowest interest rates ever, with two-year terms of 0.94 percent and five-year terms of 1.14% percent (but beware of high fees). This fierce credit competition for the best customers means to some that debt restructuring – switching contracts without moving property – can result in phenomenal savings.

Mortgages start at 95 percent LTV, but get significantly cheaper at 90 percent and again at 80 percent and 75 percent and bottom out at 60 percent. Use all your savings to hit a cheaper level if possible.

There are then two acceptance tests, provided the property is suitable.

1) Are you creditworthy? Bad credit history can torpedo an application or exclude you from the best deals. Check your credit file for errors and try to minimize other applications, excess debt and credit (i.e. access to credit even when unused) in the run-up to a mortgage. For information on checking files for free and more tips, see my guide www.moneysavingexpert.com/CreditBoost.

2) Can you afford it? Lenders need to run tight checks to see if you can afford repayments; not just about current prices, but also stress tests on how you would handle them if they skyrocketed. They want proof of income, bills, expenses, and sometimes even to go out to dinner.

Three steps to find a cheaper mortgage

1) Check out the best deal that your existing lender can give you. It doesn’t need to do affordability checks once you stop borrowing. In addition, there are usually no or lower fees and less paperwork. So start here, but AWLAYS keep checking if you can beat it.

2) Use an entire market comparison page to compare offers. Use one that covers all deals, including “direct only” (ie those not offered by a broker) like www.moneysavingexpert.com/MortgageComparison, which automatically accounts for fees – the smaller your mortgage, the bigger the impact of fees.

3) Use a mortgage broker. They can advise you and make exclusive offers, and they also know acceptance criteria that are not available to the public – so they can help if you struggle with them.

Websites like www.unbiased.co.uk can help you find a local broker. Some of the nation’s leading “no fee” brokers (paid through lender commissions) are www.landc.co.uk and www.habito.com. Far more help at www.moneysavingexpert.com/MortgageBrokers

Debt rescheduling is more difficult if you’ve received financial assistance from the coronavirus

For those who have previously been on vacation, the lender will want proof of your return to work (e.g., pay slips). That should be enough.

If you’re still on vacation, this income may not be taken into account – which may result in a rejection or a smaller mortgage offer.

The self-employed allowance can also be a hurdle. Some would-be remortgoers have been told it shows business problems and have been turned down.

If you are concerned, product transfers from your existing lender and the use of mortgage brokers are the best avenues.

There are others who have trouble rescheduling

Some who live in siding may find lenders who need an EWS1 form, which can be difficult to come by – leaving them out of debt rescheduling. More government aid is needed.

Many lenders have also tightened the criteria for the self-employed. You need rock-solid proof of profitability.

And finally to the over 200,000 existing mortgage prisoners trapped at high interest rates as victims of the financial crisis: you will know that I fought hard for your release – it’s not easy, but I have no plans to give up.

Martin Lewis is the founder and chairman of MoneySavingExpert.com. To join the 7.5 million people who receive his weekly free money tips email, go to www.moneysavingexpert.com/latestip

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