The House Hop Guide to Mortgages

Finding a Mortgage

With thousands of different mortgage products and a wealth of information about them — both online and offline — how do you choose?

Following the steps below will help you, with the internet being your first port of call. It's by far the best way to find out quickly what's on offer and what's being charged.

But first, however ...

... a warning

Filling in an online enquiry form on a lender's websites may — depending on the lender and the amount of personal detail you fill in — lead to you being credit checked (without you knowing).

This is so that lender can say whether or not they would be prepared to grant you a mortgage in principle. The problem is that every time there is a credit check against your name this is recorded by Experian, Equifax and Callcredit, the main credit reference agencies.


This is a real problem for people who are simply shopping around for the best deal and there is pressure to change the way things work. However, for the meantime, it is something to be aware of and to avoid.

Simple online enquiries — where you do not give personal information such as name, address and date of birth — are nothing to worry about.

Online

The best way to start is with price comparison sites. Without having to give personal details you can quickly see what is on offer from different lenders.

You search according to type of mortgage you want or do a general search. The products available and the lenders offering them will be shown in comparison tables, together with interest rates (including any introductory rates), arrangement fees and any incentives.

Once you have an idea of what you want you can either contact the lender directly or proceed through the comparison site, which usually involves filling in an online form that will lead to a phone call from either one of the site's brokers or the lender.

Visit the Bank

The problem with visiting the bank or building society is that the only products they will sell you are their own. And with so many mortgage products available, chances are that you won't be getting the best deal.

That said, visiting a branch can be a good way of getting general advice on the type of mortgage that might be suitable for you.

Brokers

Now that you've got an overview of the market you're in a good position to talk to a mortgage broker. Their job is to get you the best deal they can. The advantage of a broker is that, as well as knowing the market, they may be able to influence the lender to help you get accepted.

Before you choose a broker, however, check whether they:

• are "whole of market." This means that they will search from all the deals available to brokers, rather than from only a limited number of lenders
• are an Independent Financial Advisor (IFA)
• charge a fee. Many brokers do not, since they are paid a commission by lenders. If the broker can offer you a great deal a fee may be worth it, but you should not be getting charged more than 1%

Bear in mind that not all mortgage providers make their products available to brokers. The most important providers that don't are HSBC, First Direct and ING Direct.

Other lender make some of their products available to brokers, but not all — your own research, therefore, may uncover deals you do not get offered by your broker.

Developers

If you're buying a newly built or off-plan property you need to be aware of the recent controversy in relation to developer's incentives.

One problem has been developers who overvalue properties and then offer them at a "discount". The buyer thinks they're getting a great deal, when in fact they're just paying what the property is worth.

This problem can be exacerbated when the developer offers this discount in the form of a "gifted deposit". For example:

• a developer is selling a property they claim is worth £100,000
• the developer gifts a deposit of £10,000 to the buyer
• the buyer then takes out a 90% mortgage to cover the remaining £90,000

Thus, they're just a step away from negative equity as soon as they buy. When the property market was rising this was easy to mask, but that is no longer the case and some more recent buyers are already in trouble.

The good news is that in September 2008 the Council of Mortgage Lenders (CML) brought in new rules to deal with this. The CML now requires that developers disclose to lenders any discounts or incentives they are offering, which should mean that lenders can now lend on an accurate valuation and buyers will be protected.