February 9, 2014

Mortgage Comparison Sites

Mortgage Comparison SitesMortgage comparison sites are designed to allow consumers to compare mortgages quickly and without having to visit each lender or lender’s website. With thousands of different mortgage products available this can be a useful service. It would take a lot of time and energy for the average consumer to compare even a small number of the available mortgages in the market today.

Most of us have used a car insurance comparison site to compare car insurance so why not mortgages right?

Well, it’s not as straight forward to compare mortgages as it is car insurance. In fact many mortgage comparison sites will simply display a small table of available products, a few details about these products and the headline interest rate – but there are many other factors that should be considered when comparing a mortgage.

When are mortgage comparison sites used?

The obvious answer is when a person is looking for a mortgage, but there are several different scenarios that arise:

First Time Buyer

A first time buyer is a person looking to buy their first home. First time buyers will often have only a small deposit, between 5% and 15% of the property’s value and money for mortgage payments may be tight. This person will probably want to compare mortgages which allow high loan to values and at least 25 year terms. These probably won’t be the most competitive products but this is reflective of the additional risk to the lender.

Home Movers

Home movers will often have built some equity in their property so will have a lower loan to value than a first time buyer. They’ve also by this stage proven that they can keep up with their mortgage payments and so built some trust with the lenders. This elevated position in the eyes of the lender means a home mover may be able to target some of the more competitive products in the market.

Remortgage Customers

Remortgage customers are those who already own their own home. They aren’t considering moving but they would like a better mortgage deal. Depending on LTV and payment history remortgage customers can often target the most competitive products in the market. Remortgage customers have to consider exit fees if their current mortgage has them, as well as lender, broker and legal fees when setting up a new mortgage.

Buy to Let

Buy to let customers are looking to buy a property to rent. This is classed as an investment rather than a personal dwelling and so lenders offer different products to these people. Buy to let customers have to consider many of the same things as the other types of customer but will also need to consider rental income versus mortgage payments and higher costs for insurance.

Comparing the different types of mortgages available

Mortgage TypesWhen comparing mortgages you can simply look at the headline rate – this will not tell you the full story.

There are numerous different types of mortgage products including:

  • Fixed rate mortgages
  • Standard variable rate mortgages
  • Tracker mortgages
  • Offset mortgages
  • Discount rate mortgages
  • Capped rate mortgages

It’s possible that one mortgage could have a lower initial rate but be significantly more expensive over the whole term. It’s important to understand this and to have a complete illustration. You shouldn’t assume that the rate in the shop window is a true reflection of the competitiveness of the mortgage.

Make sure your comparison includes the fees and other associated costs

Mortgage FeesA mortgage comparison site will often tell you the headline rate of a product but it may not highlight the other costs associated with getting that mortgage such as:

  • Lender arrangement fees
  • Valuation fees
  • Stamp duty
  • Legal fees
  • Broker fees

These can all have a large impact on you’re the actual cost of the mortgage and so should be factored into your comparison. Some lenders will waive their arrangement fees or contribute towards legal fees or valuations.

Other costs to consider are compulsory buildings insurance, life insurance and exit fees from your current mortgage if you’re remortgaging.

Alternatives to mortgage comparison sites

One alternative to a mortgage comparison site is a mortgage broker. A mortgage broker will have access to tools that allow them to do a whole of market comparison within minutes, not the hours it would take an individual.

They can provide quotes, explain the various options including hidden fees and the overall cost of the mortgage (not just the headline rate) and will often have access to products only available to mortgage brokers.

This is probably a more thorough way of comparing mortgages.