Taking out a new mortgage? Here’s what you need to know

New data indicates that the current era of low cost mortgage deals for homeowners could be coming to an end and that borrowers with big deposits may be the hardest hit as rates rise.

The cost of a typical two-year deal with a 35 per cent deposit is at an eight-year high, according to data analysts Moneyfacts, while average mortgage rates have also risen for the first time in four months.

James Andrews, Senior Personal Finance Editor at money.co.uk, said: “Homeowners have recently enjoyed some of the lowest mortgage rates ever, as rates plunged during the coronavirus pandemic.

“However, the Bank of England has said it’s getting ready to increase interest rates for the first time since August 2018, while new data also supports the view that the era of low cost deals is coming to an end.

“If you’re worried about the cost of your mortgage rising, you should see if you can lock into an affordable rate by taking a look at what’s on offer and comparing deals.

“If you’re a first-time buyer, there are a number of good options at your disposal, including the First Homes Scheme, which offers a 30% discount on the market value of new build homes. You can find out more about this government scheme on the gov.uk website.

“Another option for those new to the market is the 95% mortgage scheme, which sees mortgage providers lend to buyers with just a 5% deposit, as opposed to the usual 10%. This means that you can get on the property ladder with fewer savings than before.

“If you’re already a homeowner but want to find a better deal, then you should look to remortgage. Doing this can help you save money, fix your costs, borrow more and shorten your term. But you should be wary of paying a fee to leave your current mortgage early and the high costs that can come with getting a new deal.

“For those looking to switch, Lloyds Bank currently offers a two year fixed remortgage. This gives borrowers a 0.91% fixed rate until 2024, followed by a 3.59% subsequent variable rate. You will be charged a £1,499 product fee with an option to add to the loan.

“If you’re moving home, you can either get a new mortgage or keep your current deal and move it across to the new property. Halifax currently offers a two year fixed deal, giving borrowers a 1.09% fixed rate until 2024, followed by a 3.59% subsequent variable rate.

“Barclays currently offers a 0.85% base rate tracker for two years, with a subsequent rate of 3.59%. With a property costing £200,000, you would pay a monthly cost of £444.15 for 24 months, then £593.02 a month.

“If you’re looking to buy a property as an investment to rent out, then you will need to get a buy-to-let mortgage. They are usually interest-only mortgages, and you will typically need a deposit of at least 25% to be approved.  HSBC currently offers a two year fixed deal, giving borrowers an initial rate of 1.24% until 2024, followed by a 4.6% subsequent variable rate.