How Do You Get the Best Mortgage Rate?

Whether you’re a first-time buyer, considering a remortgage, or looking into the pros and cons of a mortgage with no fees, understanding how lenders set rates goes hand-in-hand with finding your perfect mortgage product.

But how do mortgage rates work?

Put plainly, lenders take a holistic approach to determining the interest rates they will offer. This includes assessing factors like economic trends, current base rates, and your personal affordability and financial profile.

In this complete guide to mortgage rates, we take you through the different mortgage rate types, providing you with expert tips and strategies to help you secure the best mortgage rates. Let’s jump in.

What Are the Different Types of Mortgage Interest Rates?

It’s no secret – choosing the right mortgage product for you can save you potentially thousands down the line.

But what type of mortgage interest should you get?

There are 3 main types of mortgage interest rates in the UK:

• Fixed-rate mortgages
• Standard variable-rate mortgages
• Tracker-rate mortgages

Whether a friend has mentioned fixed-rate mortgages to you, variable-rate mortgages have cropped up on your radar, or you’re simply exploring the best tracker mortgages – understanding the pros and cons of each will help you find the right mortgage rate that matches your needs.

Let’s break down each type of mortgage rate, taking a closer look at their associated pros and cons:

Fixed Rates

As the name suggests, a fixed-rate mortgage allows for the proposed interest rate to remain fixed for the duration of your product term.

Crucially, a product term is not the same as your mortgage term. For example, while a product term may be 5-years in length, your overall mortgage term may be 25 years.

In this scenario, your fixed-interest rate will be locked for 5 years (the duration of your product term) and will revert back to the lender’s standard variable rate (SVR) after this time period has elapsed.

Since a lender’s Standard Variable Rate (SVR) is set independently, it may not always offer the most competitive terms. Therefore, remortgaging towards the end of your fixed-rate period can help you secure more favourable rates and avoid potential increases in monthly payments.

The main advantage of a fixed-rate mortgage product is that it provides a known stability for borrowers. Whether it is a two, three, or five year product term, you can accurately calculate the interest that you will be required to pay.

However, it’s important to note that fixed-rate deals often come with slightly higher interest rates compared to variable options.

Pros:

• Known monthly payments to allow for financial planning
• Protection from any rise in interest rates
• Ability to plan for the duration of your product term

Cons:

• Typically will be higher rates than other variable rates
• Should rates decrease, you remain locked into your fixed interest rate

Standard Variable Rates

A standard variable-rate mortgage product fluctuates based on market conditions and lenders’ discretion. As such, the monthly repayments on a variable-rate mortgage will both increase and decrease over time.

Most importantly, lenders set SVRs independently and can adjust them at their discretion, as long as they provide prior notice of any changes.

Unlike a fixed-rate mortgage that provides a known stability, SVRs offer borrowers the chance to benefit whenever interest rates drop. However, should the interest rates continue to rise, you are at risk of paying significantly higher interest rates than your first payment.

One key advantage of standard variable rates is that they often come with no early repayment charges (ERCs). This flexibility allows borrowers to redeem their mortgage at any time without penalty, which can be especially advantageous in a falling interest rate environment.

For this reason, when market rates begin to decline, many clients opt for tracker-rate mortgages or SVRs with no ERCs. This approach gives them the freedom to refinance onto a better deal once interest rates begin to stabilise, without incurring additional costs.

Pros:

• Potential to save money if interest rates should fall
• Flexibility on repayment terms

Cons:

• Unpredictable repayments
• Much more difficult to predict and budget long-term interest payments

Tracker Rates

A tracker-rate mortgage moves in line with an external interest rate. For mortgages in the UK, this will typically be the Bank of England’s (BOE) base rate.

The main difference between a tracker-rate mortgage and a SVR mortgage is that a tracker-rate is not subject to a lender’s discretion. Instead, the interest is always ‘trackable’ (excuse the repetition), and will be adjusted based on the official BOE rate changes.

Tracker interest rates are a fantastic option when the base rates are low. However, borrowers should always need to be prepared for potential base rate increases.

Pros:

• Clear and trackable rate changes
• The BOE interest rate can often be lower than SVRs

Cons:

• No limit on high rates
• Risk of increased repayments

Top Tips to Access the Best Mortgage Rates

In the world of mortgages, it can be easy to get lost in the labyrinth of jargon. But in order to achieve the best mortgage rates available, it requires preparation and research.

So, what’s the best way to start searching for mortgage rates?

Seeking expert advice is often the best place to start. Working with a trusted mortgage broker – like Boon Brokers – can help place an expert in your corner. Our dedicated mortgage advisers can help you navigate the complexities of the mortgage market with ease.

Whether you’re a first-time buyer, remortgaging, or exploring interest-only options, making sure that you have a trusted expert advising you on the latest developments, pros and cons, can help shift through all the jargon to find the mortgage product that matches your needs.

In addition to this, making a concerted effort to improve your key financial fundamentals – such as your credit score, deposit size, and debt-to-income ratio – you will be able to present yourself as a low-risk borrower.

This not only increases your chances of approval but can also unlock access to lower interest rates, reduced fees, and more flexible terms.

Let’s take a look at the top 5 tips for securing the best mortgage rates:

Improve Your Credit Score

No matter which lender you chose, it is almost a certainty that your chosen lender will complete a full assessment of your financial history and current affordability when determining interest rates.

Making sure that you have a strong credit profile – or the best credit file possible – can help you unlock better mortgage rate products.

It goes without saying, a lower score is likely to result in higher rates. As such, completing a soft credit report to gain clear insights into your current rating can help you gauge your creditworthiness.

Save for a Larger Deposit

One of the biggest factors in securing the best mortgage rates is your loan-to-value percentage.

This is determined by your initial deposit. Bigger deposits can secure lower rates, as lenders consider larger upfront contributions less risky.

The average first-time buyer deposit in the UK is often around 5-20% of the property’s value, but saving beyond the minimum (to a maximum of 40%) can help you access more competitive deals.

Build a Steady Employment Record

A lender’s main concern is to ensure that your financial profile meets that of a borrower who will be able to reliably repay the mortgage loan over the entire mortgage term.

Naturally, proof of a consistent income will both boost your affordability and demonstrate your reliability, presenting yourself as a low-risk borrower.

While income and affordability carry the most weight in determining your borrowing capacity, presenting a well-rounded financial profile can significantly improve your access to more competitive mortgage products.

Lenders often reserve their most attractive rates for applicants who demonstrate financial stability across the board. As such, avoiding frequent changes in employment and maintaining a consistent income stream are among the most effective ways to position yourself as a reliable and appealing borrower.

Understand Debt-to-Income Ratio

Debt-to-income ratio is a simple way for lenders to assess how much of your income is already committed to other forms of debt. This can include car finance, credit card debts, and any personal loans. For example:

• If your gross income each month was £4,000
• But your monthly debt was already at £1,000
• Your debt-to-income ratio would be 25% (1000/4000).

Lenders factor this into their affordability calculations to ensure that the additional debt of a mortgage loan would not over stretch your finances. As such, demonstrating financial stability and keeping your financial obligations clearly manageable can help you secure better mortgage rates.

Making concerted efforts to reduce any outstanding debt (and to build a strong credit score) before applying for your mortgage can help prove to lenders that you are a low-risk borrower for more favourable terms.

Watch Out for Fees

Many mortgage products on the market today can come with additional fees. These fees can include arrangement charges, application fees, and broker costs – all of which can significantly impact the overall cost of securing your mortgage.

While at first glance, a seemingly low interest rate may look like a fantastic deal, the high upfront costs may offset any initial or future savings, leaving you out of pocket in the long run.

In a similar light, some brokers may advertise access to great rates but charge a substantial fee for their services.

If you’re searching for the best mortgage rates with no fees, it’s essential to compare deals and brokers from the whole market.

Choosing to work with a trusted whole-of-market broker can help you gain access to mortgage products from a wide panel of lenders. Sharing your concerns about fees and goals about securing the best mortgage rates without fees can help narrow the comparison of lenders to find the right mortgage product for you.

When choosing a mortgage broker, it’s important to remember that higher broker fees don’t always translate to better mortgage deals. At Boon Brokers, we receive our commission from lenders, allowing us to offer expert, fee-free advice with access to the entire market – so you can secure the best deal without paying a premium for support.

What Are the Current Mortgage Rates in the UK?

If you’re asking, “What is the current mortgage base rate?”, regularly checking financial updates and consulting mortgage specialists will help you stay informed.

Interest rates will fluctuate based on economic conditions and the Bank of England’s policies. As such, it is impossible to provide a single best mortgage rate. Instead, the best way to stay-up-date on the latest mortgage rates is to contact your dedicated mortgage broker.

What’s the Best 3-Year Fixed Mortgage?

The best 3-year fixed mortgage product will wholly depend on what’s best for your personal financial situation and goals.

In short: Your financial situation, deposit size, and credit score will all play a role in determining the best and most suitable mortgage product for you.

With that being said, a 3-year fixed mortgage can offer a balance between short-term flexibility and long-term stability. It allows borrowers to lock in a set interest rate for three years, protecting them from market fluctuations while avoiding the longer commitment of a five-year deal.

When starting your search for the best 3-year fixed mortgage, it’s essential to compare rates, fees, and lender terms.

As we previously mentioned above in our Top Tips, it’s important to keep an eye on any additional fees. While some 3-year fixed mortgage deals may offer lower interest rates, they may also come with higher product fees, while others provide fee-free options at slightly higher rates.

To find the most competitive 3-year fixed mortgage rates, use the Boon Brokers mortgage rates comparison calculator. This tool allows you to compare current mortgage deals and identify the best option based on your financial profile.

When Will the Interest Rates Go Down?

One of the most common questions we get asked is: “When will interest rates go down?”

As we’ve noted, interest rates will fluctuate based on many economic factors and so predicting future mortgage trends can be difficult. For example, recent data from Trading Economics shows the UK’s benchmark interest rate currently sits at 4.25%, down from 4.5% earlier this year – highlighting how quickly market conditions can shift and why timing the market is so challenging:

However, watching financial forecasts and staying up-to-date on the Bank of England’s rate changes can provide insights into potential ‘mortgage rates go down’ scenarios.

At Boon Brokers, our dedicated mortgage advisers can provide you with clear information about the current situation with mortgage rates, inline with the Bank of England. While waiting is rarely recommended – given the uncertainty of future market movements – it’s always wise to plan your finances based on the current interest rate landscape.

Best practice: While rates may stabilise or decrease in the future, it’s essential to assess current conditions when deciding whether to secure a mortgage now or wait.

Are There Any Additional Fees When Applying for a Mortgage?

When budgeting for a mortgage, it’s easy to focus solely on the interest rate, but there are often additional costs that can catch borrowers off guard.

Even deals that advertise competitive rates may come bundled with various fees that affect the true cost of borrowing. Understanding these charges is essential for comparing deals accurately and avoiding unexpected expenses.

Common mortgage fees can include:

• Broker Fees: Some brokers may charge a fee for providing advice and/or helping you secure a deal.
• Booking Fees: There may be an upfront charge when securing a mortgage product.
• Product Fees: Depending on your chosen mortgage product, there may be fees attached to a certain mortgage deal.
• Valuation Fees: The cost of assessing a property’s value for lending purposes.

If you’re looking for a mortgage with no fees, compare lenders carefully to minimise upfront costs.

Speak to a Mortgage Specialist

While navigating the mortgage market can be complex on your own, seeking professional advice can often simplify the entire process.

Working with a trusted mortgage broker can help streamline your homebuying journey. With an expert guide you will be able to find the latest mortgage products, helping you secure the best mortgage rates suited to your financial situation.

Whether you’re a first-time buyer, looking for a remortgage, or seeking mortgages with no fees, working with a specialist can unlock the answers to understanding mortgage rate types, improving financial factors, and carefully comparing offers – saving you money in the long run.

Ready to explore your options? Contact the Boon Broker team for fee-free, expert guidance. Our team are waiting to help you find the most competitive rates available.