Set of rules for choosing a scheme

Getting back to the plot, remember we are ultimately trying for a set of rules to help choose one mortgage product.  We have now established that for many people, buying is indeed the best choice, in the long term at any rate.  We now need a mortgage, and what a choice we have - thousands of schemes with around 100 lenders.  Let's look first at the outline major subdivisions. 

Mortgage or Re-mortgage?
Are you moving house or staying put, but changing lenders to get a better deal?  With a remortgage, lenders are more cautious about the valuation since there is no actual sale to prove the market price.  But the legal fees are lower since there is no conveyance required.

Type of repayment
Capital repayment or interest-only, or a combination of the two.  Often borrowers have an endowment policy, which was taken out for a previous, smaller interest-only mortgage, but is not enough to repay a larger new loan.  But it is possible with some lenders to have a mixed mortgage, where part is interest-only to match the endowment policy, and the remaining part is a capital repayment mortgage.

Methods of repaying interest-only loans
An endowment policy, ISA, pension lump sum, unit trust etc. or indeed no separate investment at all – just the house itself.

Fixed or variable interest rates
Usually a fixed interest rate is only for a pre-set period, then changing to a variable rate or another fixed rate.

Capped, floored or collared interest
A guaranteed maximum rate (sometimes coupled with a minimum) for a pre-set period.

Cashback or Discount
As an incentive, some lenders provide an upfront cash sum or a lower interest rate for a pre-agreed initial period, such as 3 years.

Flexible Payment
You choose the repayment schedule.  In simple terms, you can overpay and underpay without penalty, but arrangements vary with different lenders.

Current Account mortgage
A sort of mortgage “overdraft”, combined with your current bank account – the ultimate flexible payment mortgage.  Any occasional surplus on your account will reduce your total loan and so reduce the interest charged.  You can borrow right up to the agreed limit at any time, as long as it is repaid at the end of the pre-agreed term.  So you can also use it as an investment account with money going in and out as you please. 

When you put money in, you are saving interest at the full mortgage rate so your savings are effectively earning interest a much higher rate than for a conventional deposit – and there is no tax to pay either.  If the mortgage rate is say 7%, the “deposit rate is 7% too – equivalent to 11.67% pa gross for a top rate taxpayer.

Special Cases
For example, this can mean a special focus on impaired credit applicants (i.e. those with bad credit histories), or buy-to-let, or elderly applicants, or non-status, or those wanting 100% mortgages etc.

Shortening the list
With all this choice, where do you start?   You need to shorten the lender list. 

Decide first if you are moving or buying for the first time, or remortgaging for a better deal.  Then identify if you are a special case and then you can eliminate lenders who do not offer a product that fits.  For example, not every lender offers a buy-to-let scheme.  If you have had a County Court Judgement (CCJ) or have been in arrears with your previous lender, you may not be accepted on normal terms by another lender.  Obviously it may be worth keeping your existing lender in the frame if you are moving house, as they may prefer the devil they know and give you better terms than any new lender.

You may even now decide to go to a specialist mortgage broker at this stage, now knowing what questions to ask, or simply search on the Internet or read the various publications that list practically every lenders’ products, such as Money Facts.  There are a fast-growing number of web sites that provide independent tool-sets to search the marketplace.  It would be a waste of time to list all those web sites that are now current, so simply ask your favourite search engine to locate say “mortgages”.  Try www.find.co.uk, which is a directory explicitly for financial services.