About Mortgage Comparison

A mortgage is a way of borrowing that most people will need to use when they want to buy a home. No matter where you are on the property ladder – a first-time buyer, potential home mover or someone looking for a remortgage deal – carrying out a mortgage comparison allows you to compare mortgage rates, and other aspects of a mortgage, to ensure you’re getting the best mortgage for you.

The size of your deposit, or the amount of equity you’ve already built up in a home, will go a long way to determining the mortgage rates you can get. The more you put down as a deposit, the less you’ll need to borrow relative to the value of your home – and a lower loan to value (LTV) is usually the path to being offered the lower rates.

Your monthly income, outgoings and credit score are also important in securing the mortgage, along with the type of mortgage you need, how long you want to pay it back and whether you want to fix your mortgage rate or not.

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Making sure you research and compare mortgages is the key to finding the right mortgage for you. We cover everything you need to help narrow down your search.

• What types of mortgage can you get?
• Can I get a mortgage?
• Work out how much mortgage you can afford
• How to apply for a mortgage
• Mortgage calculators

How to get a mortgage

Getting the right mortgage deal for you is important. After all, it’s a long-term financial commitment and monthly expense you’ll need to keep up for years to come. But where do you begin?

The first step when making a mortgage comparison is to work out the type of mortgage you need, something which will depend on why you are looking for a mortgage.

What mortgage do I need?

Most mortgage borrowers fall into one of the following categories:

First-time buyer

If you’ve never owned a home before, a first-time buyer mortgage is usually what you’ll need. Knowing that you’re just starting out, the deposit requirements on most first-time buyer mortgages are generally small and mortgage deals where upfront fees are kept to a minimum are usually available.

Remortgaging

If you already have a mortgage but want to switch to a new one, you are looking to remortgage. Most people remortgage because their current fixed-rate or discounted term is at an end and they don’t want to move on to their lender’s standard variable rate, which is usually higher. Other reasons you might want to remortgage include to raise funds to pay for home improvements, or because falling interest rates or a rise in the value of your home means you could save money by switching to a new mortgage deal.

Moving home

If you already have a mortgage but want to move home, you may be able to take your current mortgage with you – called porting. Alternatively, you might want to arrange a new mortgage altogether, either with your current lender or a different one. Whichever option you’re considering, you should always weigh up the costs of either porting or exiting your existing deal, along with the potential fees you face if you arrange a brand new mortgage.

Buy-to-let mortgages

If you’re considering buying a property to rent out to tenants, you will need a buy-to-let mortgage. Also sometimes known as a landlord mortgage, the minimum deposit on a buy-to-let mortgage is typically higher than on a residential mortgage. You’ll need to show that the rental income you’re likely to receive will more than cover your monthly repayments too.

What types of mortgage can you get?

There are various different types of mortgage available to both new and existing home buyers, including:

• Fixed-rate mortgages have a fixed interest rate for a set period of time, during which your monthly payments and interest rate will stay the same. When that initial term ends, if you don’t remortgage, the interest rate usually moves to your lender’s standard variable rate, or SVR.
• Tracker mortgages, which are a type of variable rate mortgage that tend to follow at a certain percentage above the base rate.
• Discount mortgages, which work by tracking a lender’s standard variable rate at a discounted rate for a set period of time.
• Interest-only mortgages, which only require that you pay off the interest each month, and none of your original loan, until your mortgage is at an end. It’s worth remembering that you will still owe exactly the same amount as you borrowed. Lenders may also ask for evidence of your repayment strategy. Another thing to remember is that interest-only mortgages can also be on a fixed or variable rate of interest.
• Offset mortgages, which allow you to set your savings against what you borrow to reduce the interest you must pay.

Which mortgage is right for me? 

A fixed-rate mortgage offers peace of mind that your monthly repayment will stay the same for the length of time that you fix, even if interest rates start to rise – though you won’t benefit from interest rates falling either. With a variable rate, on the other hand, the rate of interest you pay can rise and fall, usually in line with any change in the Bank of England base rate. This means your monthly repayments could change too, which can work in your favour if rates fall but can leave you paying more if rates rise.

To choose between a fixed rate or a variable rate, ask yourself:

• Do I want to know exactly what my mortgage will cost each month?
• Do I mind if my repayments increase and decrease without warning?
• Do I want to take advantage of potential drops in the base interest rate?
• Am I willing to remortgage after my fixed-rate period expires?

Interest-only vs repayment mortgages

A mortgage has two parts: capital, which is the amount of money you borrow, and interest, which is what the lender charges on the amount you owe. How you pay back your mortgage loan and the interest you’re charged depends on whether you take out an interest-only mortgage or a capital repayment mortgage. 

With interest-only mortgages, your monthly repayment covers just the interest that you owe on the debt, not the amount borrowed. So you’ll still owe the full amount borrowed at the end of the mortgage term, as you’re not paying back any of the capital borrowed over time. Interest-only residential mortgages have fewer options than repayment mortgages. Also, you may not be able to borrow as much and will need to demonstrate how you will repay the capital at the end of the term.

With a repayment mortgage, you gradually repay all the money you borrowed, over your chosen mortgage term, plus interest. Your mortgage balance will get smaller every month and at the end of the agreed term, there will be no outstanding debt if you’ve met the payments. It’s the most common option.

» MORE: Do I need an interest-only or repayment mortgage?

Why loan-to-value ratio matters

The loan-to-value (LTV) ratio is how much you borrow against the property’s total price, after your deposit amount is deducted.

So, say you want to buy a home worth £200,000 and have a 10% deposit of £20,000. It’s no good applying for a mortgage that only offers a maximum 70% loan to value, requiring a 30% deposit. Instead, you’ll need to find a lender who will offer you a 90% LTV.

The LTV can also affect the interest rate you’re charged. You’ll usually get better rates from lenders if you have a lower LTV.

Factor in mortgage fees

When you compare mortgages, alongside the mortgage rate, it’s important to consider any fees the lender charges for arranging the mortgage. The annual percentage rate of charge (APRC) aims to make meaningful mortgage comparisons easier for borrowers by taking into account the initial rate, charges such as arrangement fees and valuation fees, and the follow-on, standard variable charge rate. 

If you intend to make overpayments, or think you may, one day, want to repay your entire mortgage early, it’s important to consider any early repayment charges and when they may apply. It’s also sensible to note the extent of penalties for late or missed payments. 

Stamp duty

If you’re buying a property or land, you might need to pay a tax called stamp duty to the government, which could add to your overall costs. How much you’ll pay depends on the value of the property, where you are on the property ladder, and whether you’ll live in the property or rent it out.

In England and Northern Ireland, if you’ve owned a home before and are buying a property to live in, you won’t have to pay any stamp duty if the home is worth less than £250,000. If you’re taking your first step on to the property ladder, first-time buyer stamp duty relief means there is no stamp duty to pay if your property is worth under £425,000. But in either situation, if your property is worth more than the nil-rate threshold relevant to you, stamp duty becomes payable in line with the rate tiers your property falls into.

Stamp duty rates and thresholds are different in Wales and Scotland, and if you’re buying a second property or looking to become a landlord.

» MORE: Use our stamp duty calculator

Can I get a mortgage?

Mortgage lenders have rules about who they’ll lend to. They’ll have a minimum age for applying, usually 18, and 21 for a buy-to-let mortgage, and a maximum age you can be when your mortgage term is due to end, which varies from lender to lender.

You’ll usually need to have been a UK resident for at least three years and have the right to live and work in the UK.

Lenders will check your finances, so they are confident you can afford the repayments. So they’ll look at documents, such as your payslips to verify how much you earn and bank statements to see how much you spend each month, and they’ll ask about any debts you’re paying off such as car finance loans. They’ll also look at your credit score. Lenders want to be sure you’ll be able to afford your mortgage now and in the future.

If you work for yourself, it’s possible to get a mortgage if you are self-employed. Or if you receive benefits, it can be possible to get a mortgage on benefits too. 

Work out how much mortgage you can afford

You’ll get a good idea of how much mortgage you can genuinely afford to pay each month, and how much you would be comfortable spending on the property, by taking a close look at your bank statements. What is your income – and your partner’s if it’s a joint mortgage – and what are your regular outgoings? What can you cut back on and what are non-negotiable expenses? And consider how much you would be able to put down as a house deposit. It may be possible to get a mortgage on a low income too. 

Once you’ve got some figures to hand, you may want to get an agreement or decision in principle from a mortgage lender. This will give you an idea of the amount you may be allowed to borrow without needing to apply and usually without affecting your credit score. However, it’s not a definite promise from the lender that you will be offered a mortgage. 

» MORE: Try our mortgage repayment calculator

Consider how much you should borrow

While it may be possible to borrow as much as four or five times your salary, lenders will look closely at your personal finances before they come to a decision.

As well as your income, they will look at your other earnings, such as investments, and run a credit check to see your repayment history and credit score to evaluate how much to lend you, taking your house deposit into consideration. The higher your deposit, the more favourable the interest rates tend to become because you’ll need to borrow less as a percentage of the total property price, which makes your loan less of a risk to the lender.

Lenders also look at your debt-to-income ratio, which compares your monthly income to your monthly debt repayments as a measure of affordability. If your outgoings are too high each month relative to your monthly pay, a lender likely won’t approve you for a mortgage.

Knowing how much you can afford can be more important than what you can borrow. You should be left with some disposable income and breathing space in case interest rates rise.

» MORE: How much can I borrow on a mortgage?

How to apply for a mortgage

You may be able to apply for a mortgage directly with a bank, building society or lender, or you may need or prefer to apply through a mortgage broker. You’ll need to provide identification documents and a proof of address, such as your passport, driving licence or utility bills.

Lenders will also want to see proof of income and evidence of where your deposit is coming from, including recent bank statements and payslips. It will save time if you have these documents ready before you apply.  

» MORE: NerdWallet’s best mortgage lenders

Mortgage Calculators

Want to do some mortgage number crunching? Get an idea of the size of mortgage you may be able to afford with our mortgage borrowing calculator. Or for an estimate of what your monthly mortgage repayments may be there is our mortgage repayment calculator.

Check out our various mortgage calculators below.

About the Author

Tim Leonard

Tim is a writer and spokesperson at NerdWallet and holds the Chartered Insurance Institute (CII) Level 3 Certificate in Mortgage Advice. He has over 20 years’ experience writing about almost…

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