Buying a home is likely to be the biggest purchase you'll ever make - and the mortgage deal you choose can make thousands of pounds' worth of difference to your long-term costs.
Mortgages can differ in countless ways, meaning it can be really tricky comparing deals. In this guide, we'll explain the most important things to look for when comparing deals to help you find the best mortgage for you.
Comparing mortgage deals by interest rates
When you're comparing mortgages, the interest rate is one of the most important factors. It can make a huge difference to your monthly and annual payments, as our mortgage interest calculator shows.
You can sort mortgages by interest rate using comparison sites such as Which? Money Compare.
Naturally, a lower interest rate will save you money - but it's important to first make sure you pick the right type of deal.
Mortgages tend to be categorised according to the way their interest rate works, and there are four main types:
With a fixed-rate mortgage, the interest rate on your deal remains the same for a set amount of time - usually two or five years.
Fixed-rate deals are the most popular and common type of mortgage on the market.
They give you the freedom to lock in a good rate for a period of your choosing, but you'll need to remember to remortgage at the end of your fixed term, as if you don't, you'll be transferred on to the lender's (more expensive) standard variable rate.
Find out more in our guide to fixed-rate mortgages.
Discount mortgages have an interest rate that's 'pegged' at a set amount below the lender's standard variable rate (SVR) for a set amount of time - usually two years.
This means that if the lender has an SVR of 5%, and your mortgage is pegged 1.5% below this rate, you'll pay 3.5% - and if the lender's SVR goes up or down, so too will your rate.
Lenders can change their SVRs whenever they like, so discount mortgages can be a risky choice as your payments could go up with no notice.
Learn more in our full guide to discount mortgages.
Tracker mortgages are pegged at a certain percentage above the Bank of England base rate.
So if the base rate is 1% and your mortgage is 'base rate plus 2%', you'll pay a rate of 3%.
Tracker mortgages have become less common since the COVID-19 outbreak, largely due to the base rate dropping to a historic low of just 0.1%.
Our full guide to tracker mortgages explains more.
When your fixed, discount or tracker period ends, you'll be moved on to your lender's standard variable rate (SVR).
The SVR is usually much more expensive and can change on a month-by-month basis, so it's important to switch to a new deal (remortgaging) before the end of your deal period.
Find out more in our full guide to standard-variable-rate mortgages
What are mortgage fees?
Interest rates aren't the only thing you'll need to consider when comparing mortgage deals. Fees can make a big difference, too, and there are several different types you should watch out for:
- Arrangement fees - sometimes known as booking or product fees, these are paid to the lender for setting up your mortgage. They vary between mortgage providers, ranging from free to £2,000. Some lenders charge a percentage of the amount you're borrowing rather than a flat fee.
- Valuation fees - your lender will need to conduct a valuation to check the property is worth roughly what you want to pay for it. This is just to protect them, not you, and some won't even show you the results - but they may still expect you to pay for it.
- Legal fees - these fees are charged to sort out the legal particulars when setting up a new mortgage or switching deal.
Some lenders offer fee-free deals, but the mortgages with the cheapest interest rates usually come with hefty up-front fees.
It can be possible to add arrangement fees to your mortgage balance, but this usually isn't advisable, as you'll then need to pay interest on them.
What are early repayment charges (ERCs)?
Up-front fees can add to the cost of borrowing, but early repayment charges (ERCs) could sting you further down the line if you choose the wrong fixed term on your mortgage.
ERCs are generally charged on fixed-rate mortgages of five years or longer, and they mean that if you decide to pay off the mortgage early (including by moving home and taking out a new mortgage), you may need to pay thousands in charges.
ERCs can be as much as 5% of the balance in the first year of your mortgage, before dropping each year thereafter.
You can sometimes avoid ERCs by getting a portable mortgage, which you can take with you when you move home - but bear in mind your old mortgage might not be the most suitable for your new property.
What are APRCs?
When you compare mortgages online, you'll usually see a column called 'APRC'.
A mortgage deal's annual percentage rate of charge (APRC) is a calculation of how much you'd pay if you stuck with the deal for its entire term, until you've paid off the mortgage in full.
This means the APRC incorporates the initial rate and fees but also the SVR, which you'd be moved onto at the end of the initial deal period.
While it can be interesting to see how deals compare on this measure, the APRC won't be that useful if you're planning to remortgage when your initial period ends - which you almost always should.
Should you choose a mortgage offering cashback?
Some lenders offer cashback and other incentives to make their deals more attractive to potential customers - but you should always weigh up whether a quick injection of cash is worth it if it means paying back more in the long run.
In November 2020, 25% of fixed-rate mortgages available to first-time buyers came with some form of cashback, usually between £250 and £1,000.
These sums are unlikely to make a significant difference in the long run, so you should consider cashback a 'nice to have' on a mortgage, rather than a reason for choosing a specific deal.
Comparing lenders on customer service and reputation
It's important to consider the quality of the lender behind your chosen deal. After all, a low interest rate is great, but if it's coming from a lender who won't answer your calls when you have questions, is it worth the saving?
Every year, Which? surveys thousands of homeowners about their mortgage and lender, and combines the results with expert analysis to reveal the best lenders for customer service, value for money, and a number of other metrics.
The Which? Recommended Providers from 2020 are in the table below - but if you'd like to see how all of the UK's biggest mortgage lenders fared, check out our full list of mortgage lender reviews.
|Provider||Which? verdict||Customer score|
|First Direct offered the highest number of cheap mortgage deals out of the 23 lenders we reviewed, and achieved top marks for communication and online services.||77%|
|A Which? Recommended Provider for the seventh year running, Nationwide customers were impressed by the lender's flexibility and quality of customer service.||73%|
|Coventry offered some of the cheapest mortgage deals for home movers and switchers and achieved consistently good ratings from its customers.||73%|
Banks vs building societies: which offer the best rates?
When it comes to mortgage-hunting, many people start by talking to their own bank - but it would be a lucky (and unusual) coincidence if that was where the best deal was to be found.
In fact, it's often not banks offering the best deals at all, but building societies - and they're sometimes ones that you won't see on your local high street.
So, to get a full picture of the deals on offer, you really should include building societies in your search, especially since two of our three Which? Recommended Providers for 2020 were building societies.
Finding the best mortgage deals: five top tips
1. Work out what you can afford
Use our mortgage repayment calculator to find out what your repayments would be at different interest rates. This will give you a better idea of how much you can afford to borrow, both now and if rates change in the future.
2. Shop around
There are thousands of mortgages on the market, each with vastly differing rates and fees, so it's important you don't settle for the first one you find. You can compare the best mortgage deals currently on the market by visiting Which? Money Compare.
3. Be wary of extra interest
Instead of paying your mortgage fees upfront, you may have the option of adding them to your loan. This can be a helpful option if you're low on cash, but it will result in you paying interest on these fees over time.
4. Choose the right fixed term
As we mentioned earlier, many fixed-rate mortgages come with early repayment charges (ERCs), which you will incur if you exceed the fee-free overpayment limit (usually 10% per year) or leave the mortgage during the introductory deal period.
So if you think you might want to move house in the next few years, consider playing it safe by choosing a shorter-term fix.
5. Use a mortgage broker
Choosing a mortgage is complex, so it can be useful to use a mortgage adviser (or 'broker'), who can advise you on the best deal for your circumstances.
Be aware that some mortgages are only available to people applying directly (without a broker), while for other deals the opposite is true and you'll only qualify if you apply through a broker.
To complicate matters further, some mortgage brokers just work with a select panel of lenders, meaning they won't be able to tell you about deals from other lenders which may be cheaper.
If you want to make sure you're really getting the best deal, it's advisable to use a 'whole-of-market' broker who will be able to look at every mortgage on the market (including direct-only ones) and recommend the right option for you.
- Find out more: choosing a mortgage broker