Making debut in mortgage market can be daunting - Gareth Shaw

It can be daunting navigating the mortgage market for the first time but I would say that there are plenty of ways to get help and support.

Banks and building societies have dedicated, qualified mortgage advisers who can discuss and advise you on the range of the deals that they offer.

Online price comparison sites allow you to use a range of calculators and tools to understand how much you could borrow, and what deals are available in the market.

And there is a healthy market for independent mortgage brokers, who can scour the entirety of the mortgage market and provide a tailored and personalised solution for your needs.

As a self-confessed novice, I would recommend a regulated mortgage broker.

Not only can they do the hard work for you by looking for the right deal for your scenario, they also have access to deals only made available to intermediaries.

And with regulated advisers, you have the ability to complain to the Financial Ombudsman Service – which looks to resolve disputes between consumers and regulated firms – if anything should go wrong.

But I will walk you through the very basics of the different mortgage types.

The appropriateness of these will depend on your aspirations – whether this is a home for life, or if you’re planning to move a few times; the current economic conditions and much more.

Variable-rate mortgages come in two forms – tracker mortgages and discount mortgages.

With a tracker mortgage, your interest rate ‘tracks’ the Bank of England base rate (currently 0.1 per cent) then with additional interest added on top. For example, you might pay the base rate plus 3 per cent (3.1 per cent).

You’d typically take out a tracker mortgage with an introductory deal period, usually two years and then move onto your lender’s standard variable rate (SVR).

This is a rate each individual lender sets itself, which is independent of the Bank of England’s base.

The average SVR is currently 4.44 per cent, according to Moneyfacts, which is much higher than most mortgage deals.

So if you can avoid landing onto your bank’s SVR by remortgaging and switching deals at the end of the introductory period, you should.

So-called ‘lifetime’ trackers, which track the base rate for the entirety of your mortgage term and don’t move to the SVR, do exist, but are very rare.

Discount mortgages describe paying the lender’s SVR, with a fixed amount discounted.

Say your lender’s SVR is 4.5 per cent and the deal came with a 1.5 per cent discount, your mortgage rate would be 3 per cent.

Discounted deals can be ‘stepped’ – meaning that you might pay a lower rate for one part of your deal and a higher rate later on into the deal.

Some variable rates have a ‘collar’ – a rate below which they can’t fall – or are capped at a rate that they can’t go above. Make sure to look out for these features when choosing your deal to ensure you understand what you’re signing up to.

With fixed-rate mortgages, you pay the same interest rate for the entire deal period, regardless of interest rate changes elsewhere.

Two and five-year deal periods are the most common, and when you reach the end of your fixed term you’ll usually be moved on to your lender’s SVR.

Whether you should choose a fixed or variable-rate deal depends on whether you think your income is likely to change, whether you prefer to know exactly what you will be paying each month and whether you could cope if your monthly payments went up.

Gareth Shaw is head of money at Which? He has been a financial journalist for over a decade, working at the Financial Times, Saga and previously as editor of Which? Money magazine. He regularly appears on broadcast, print and online media as a financial expert, including Channel 4’s Dispatches, Rip-Off Britain, BBC News and ITV News.

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