Finding the best mortgage providers first requires you to understand all there is to know about your own financial and personal circumstances. Here, we explain what you should be looking for to get the best deal for you.
If you’re like most people, buying a house is the biggest investment you will ever make, and a mortgage is also the biggest debt you’re likely to take on.
You’ll want to be certain that you’re borrowing from a strong, solid mortgage provider – and that’s what we discuss in this article, as we answer some key questions, including:
- Which type of mortgagor are you?
- Who are the best mortgage providers for you?
- Which type of mortgage is best for you?
- How do you find the best mortgage provider?
Editor’s note: It’s important to understand that your unique circumstances and finances will impact who can offer you the best deal for your mortgage. This article is aiming to give you more knowledge and understanding of what’s available at the time of writing, and how your personal situation can alter which offer is best for you.
TLDR: Best Mortgage Providers
When identifying the best mortgage providers, you’ll need to consider which type of borrower you are.
For example, Nationwide offers great deals for first-time buyers, while HSBC is suitable for the self-employed, Aldermore and Precise are good for poor credit, Virgin Money for remortgaging, and Co-Operative Bank for buy-to-let investors. Skipton Building Society offers a no-deposit Track-Record Mortgage, and Santander is excellent for shared ownership.
You’ll also need to consider which type of mortgage you want, such as capital repayment, interest-only, discounted, or fixed rate, to name a few.
With so much to think about, you might consider using a mortgage broker – but if you’re confident with mortgages, you could approach mortgage lenders direct to cut out the intermediary.
Who Are The Best Mortgage Providers For You?
Finding the best mortgage broker depends on your needs and personal circumstances. Whether you’re a first-time buyer, self-employed, have bad credit, want to remortgage, interested in shared ownership, or investing in buy-to-let properties, there are many options to choose from.
Here’s a breakdown of the best providers in the UK market for each type of mortgagor.
The First-Time Buyer
The market in first-time buyer mortgages is highly competitive, with some great deals available.
Of the bigger lenders, Nationwide offers some terrific first-time buyer mortgages, with higher-than-average borrowing amounts (up to 5.5 times your income) and cashback offers that could help cushion the fees and charges related to purchasing a property.
Of the smaller mortgage providers, Skipton Building Society offers a no-deposit Track Record Mortgage, which is great if you have a good record of making rental payments. The amount you can borrow is based upon the rent you have been paying.
Yorkshire Building Society is currently offering a first-time buyer mortgage for those with only £5,000 as a deposit.
Moving back to the larger lenders, HSBC could be another excellent choice if you have a 10% or greater deposit saved. With relatively low arrangement fees of £999 and faster-than-average approval times, it’s a popular option for first-time buyers.
The Self-Employed Buyer
If you’re self-employed, most lenders will require at least three year’s accounts with proof of income, though some providers will accept as little as one year.
Larger mortgage providers like HSBC and Barclays consider not only your salary and dividends, but also your retained profits, which is useful if your income is inconsistent or your finances more complicated than the norm.
If you only have one year of trading behind you but it’s been a strong year, Halifax could be the best choice, though Santander is also a strong contender.
As with mortgages for first-time buyers, looking beyond the big providers could prove profitable. Specialist lenders like Aldermore Bank and Precise Mortgages are particularly good if your business is more complex, or you have several income streams (for example, you work in the gig economy).
If You Have Bad Credit
Don’t despair if you want to buy a home but have a poor credit history – there are several providers who specialise in lending to people with low credit scores.
Whatever the reason for your poor credit report – CCJs, missed or defaulted payments, IVAs, and even bankruptcy – there is a mortgage provider to approach. These include:
- Aldermore
- Foundation
- Kensington
- Precise
- West Bromwich Building Society
Due to the complex nature of these mortgage products, many are only available through specialist mortgage brokers like John Charcol and Simply Adverse.
The Remortgaging Borrower
As someone who has an existing mortgage, you have a history of managing mortgage payments – and this makes you a lower risk compared to most other types of mortgagors.
Consequently, you’ll have a wide range of mortgage providers to choose from – and the major lenders are likely to be high on the list of borrowing options for you.
Currently, lenders such as HSBC and NatWest offer remortgages with no legal fees, with up to five-year fixed-interest terms. NatWest also offers a £250 cashback deal.
Barclays offer mortgages up to 85% LTV and are noted for their customer support. If you’re shopping around and want to secure an offer while you explore your options, Virgin Money will hold your mortgage offer open for up to six months, with arrangement fees fully refundable if you don’t go ahead.
The Shared Ownership Buyer
If you are seeking a mortgage for a shared ownership property, your options are expanding with the market in this kind of homeownership deal.
Among the best providers are Nationwide and Santander (with no product fees and 75% to 90% mortgages based upon the value of your share), though Santander stipulate that you must be allowed to purchase 100% of the property over time.
Barclays also offer an attractive proposition, but you must have no restrictions on resale to secure a shared ownership mortgage with them.
The Buy-To-Let Investor
Buy-to-let investors have had a tough time in recent years, as market uncertainty and increased regulation and taxation have combined to deter lenders in this sector.
The Co-Operative Bank is a market leader currently, with buy-to-let mortgages of up to 75% LTV and some products with no set-up fees if you have a larger deposit. Barclays are in the game, too, as is HSBC with a no-fee tracker mortgage if you are seeking 60% to 75% LTV.
What Is A Mortgage?
A mortgage is a type of credit facility used to buy a home, land, or other types of real estate. At the outset, you’ll agree to certain terms and conditions. These include:
- The amount you are borrowing – called the ‘capital’
- The interest rate you will be charged
- The form of interest charges – e.g. variable, fixed rate, capped, uncapped
- The term of the mortgage – how many years you have in which to repay the capital and interest
As you search for a mortgage provider, you’ll also need to become accustomed to terms like:
- Loan-to-Value or ‘LTR’ – how much the lender will offer to lend compared to the value of the property you wish to buy;
- deposit or downpayment – how much of the total purchase price you will need to pay to secure the mortgage;
- and collateral – which is usually the property you are buying. Default on your mortgage and the lender could repossess your home.
Which Type Of Mortgagor Are You?
Before choosing your mortgage provider, you should be aware of the type of mortgager (borrower) you are, because not all lenders are equal, and not all mortgages are suitable for all types of mortgagors.
Here’s a quick rundown:
First-Time Buyer
You’re looking for a mortgage to buy your first home. You might need a mortgage provider that offers a higher LTV, meaning you will need a smaller deposit. You might also benefit from a government help-to-buy scheme.
| Tip If you’re saving for your first home, consider opening a Lifetime ISA – it’s a tax-efficient way of saving, and the government gives you an annual bonus of up to £1,000 on your savings! |
Self-Employed Buyer
Rightly or wrongly (in most cases, wrongly, in my opinion – but that’s another discussion), mortgage providers are less keen to lend to you if you are self-employed.
They view you as a higher risk, with inconsistent income that could affect your ability to repay the mortgage in full. Therefore, the lending criteria are tougher, and you’ll need to provide extra documentation.
Bad Credit Mortgagor
Before applying for a mortgage, you should ask yourself, “What’s my credit score?” You might have a low credit score because of a history of overdue payments, or even because you’ve never borrowed any money!
A low credit score makes getting a mortgage much more challenging, but it is possible – though you may need to make a larger downpayment and pay a higher interest rate.
| Tip Improve your credit score before searching for a mortgage. A clever way to do so is to apply for and use one of the best credit building cards. |
Remortgaging Borrower
You might want to remortgage your home for a variety of reasons. It could be that you want to release equity to go on the holiday of a lifetime, repay other debt, or pay for your child’s tuition fees.
Most commonly, homeowners remortgage to take advantage of a better interest rate with another mortgage provider.
| Tip If you are considering remortgaging, make sure you won’t be stung by high penalty charges for early repayment of your existing mortgage. |
Shared Ownership Buyer
If you can’t afford to buy a home at today’s valuations, you might consider a shared ownership property. The idea is that you purchase a proportion of the house (typically between 25% and 75%) while a housing association retains the remaining proportion.
You’ll pay rent based on the part the housing association owns, and a mortgage on the part you own. You’ll have the option to increase your ownership over time.
Buy-To-Let Investor
If you wish to buy a property to rent to tenants – with the aim of generating income and benefitting from any capital growth – you’ll need to seek out a mortgage provider focused on lending to buy-to-let investors.
You are likely to need to make a sizeable deposit, and how much you can borrow will be based on the rental potential rather than your income.
Which Type Of Mortgage Is Best for You?
The range of mortgage types is even more diverse than the range of mortgagors!
You’ll need to consider factors such as your attitude to the risk of interest rate rises, and how you wish to repay the mortgage amount, to determine which type of mortgage is best for you:
Capital Repayment Mortgages
With a capital repayment mortgage, your monthly mortgage payments will cover both the interest charges and repayment of the amount you have borrowed.
This guarantees you will repay the mortgage by the end of the term, though your monthly payments will be higher when compared to interest-only mortgages.
Interest-Only Mortgages
With an interest-only mortgage, your monthly payments only cover the interest on the capital outstanding on your mortgage. With lower monthly repayments, you’ll have more free cash to use as you please.
However, over the term of the mortgage you will pay more in interest payments, and you’ll still need to repay the entire loan when the mortgage matures – so you’ll need to ensure you have enough money to do so.
Offset Mortgages
An offset mortgage links your savings to your mortgage. The interest you receive on your savings is used to reduce the interest you pay on your mortgage. The result is that you could save a significant amount of interest, while retaining access to your savings should you need it.
For this to be effective, you’ll need to maintain reasonable savings. It could also be that you’ll pay a higher interest rate on your mortgage, and not benefit from the best interest rate on your savings.
| Tip Before applying for an offset mortgage, compare interest rates for mortgages and savings and calculate if you might be better off with a different type of mortgage and a separate high-rate interest savings account, using the interest from this to reduce your outstanding mortgage faster. |
Discounted Mortgages
For many home buyers, especially first-time buyers, the first couple of years paying a mortgage can put a strain on your finances. Discounted mortgages aim to help you negotiate this challenge by reducing the interest rate charged for a set period.
However, the new higher payments when the discount period ends can come as a shock – and the interest rate could be higher than other mortgage options.
Islamic Mortgages
Complying with Sharia law, Islamic mortgages charge no interest, thus complying with religious beliefs and making them suitable for Muslims.
However, they are structured differently to conventional mortgages, and this complexity and the fees involved can make them more expensive.
Standard Variable Rate Mortgages
Standard Variable Rate (SVR) mortgages have their interest rates set by the lender, with changes made at the lender’s discretion. This type of mortgage is usually the most flexible, often allowing you to make overpayments or early repayment without penalties.
This said, if the lender changes their SVR frequently, your mortgage payments will change likewise – which could screw with your budget planning.
Tracker Mortgages
The interest rate charged on a tracker mortgage follows the Bank of England (BoE) Base Rate (or other standard central bank rate), plus a fixed percentage.
When the BoE Base Rate is low, you’re more likely to benefit from lower interest rates faster; but should the base rate increase then your mortgage rate will increase. In a competitive market, this could mean the interest rate you pay is higher than other mortgage options.
Fixed-Rate Mortgages
If you desire stability in your mortgage payments, a fixed-rate mortgage will appeal to you. Typically, the interest rate is set for up to five years (though occasionally there are longer-dated fixed-rate deals available), during which time your interest rate won’t change.
On the downside, this type of mortgage usually charges a slightly higher interest rate, and if interest rates should rise before the end of the fixed-rate period, your monthly repayments could rise substantially.
You may also find that you’ll be charged significant penalties for early repayments during the fixed-rate period.
Capped-Rate Mortgages
A capped-rate mortgage benefits from an interest rate that will not increase above a set level that is determined at the outset. You’ll be protected if interest rates rise substantially and benefit if rates fall.
But, with this type of mortgage, you are likely to pay a higher rate than the SVR (below the cap) to compensate the lender for the security the cap provides to you.
How Do You Find the Best Mortgage Provider?
Now comes the search for the best mortgage provider – the one most suited to your individual circumstances. By now, you know which type of mortgagor you are and the type of mortgage that will suit you best.
Other major factors you’ll need to consider are:
Loan-To-Value
The LTV you will be offered depends on several elements, though mortgage providers will offer different LTVs with different mortgage products. A larger deposit will mean a lower LTV, which generally means a lower interest rate and lower monthly payments.
Interest Rates
Higher interest rates equal higher monthly payments. However, this doesn’t necessarily mean that the lowest rate is always the best for you.
You’ll need to consider other factors like fees and charges, as well as penalties for early repayment and how your mortgage interest rate might change over time.
Fees & Charges
When your mortgage application is accepted, don’t be surprised by fees and charges applied. These can include arrangement fees, valuation fees, legal fees, and more. Watch for early repayment charges and penalties, too.
| Tip Always check the total cost over the entire mortgage term, not only the interest rate. What looks cheaper could cost you more in the long term. |
Term Of Mortgage
Typically ranging from 10 to 40 years, the mortgage term will affect you in two ways.
A longer mortgage term will reduce your monthly payments, but increase the total amount of interest you pay. A shorter mortgage term will have the opposite effect – you’ll pay more each month but less interest in total.
How Much You Can Borrow, & How Much You Can Afford to Borrow
When deciding how much they will lend to you, each mortgage provider has their own rules.
However, they all look at factors that include your income, how much deposit you have saved, your monthly expenses and budget, existing debts, and your credit score.
Before applying, make sure you know how much you can afford to borrow. Consider your income, outgoings, and lifestyle.
Be prepared to demonstrate that you have budgeted conservatively (underestimate your income and overestimate your expenses), and provide documentation as evidence of your financial health and money-management skills.
| Tip If possible, maintain an emergency fund equivalent to three to six months of outgoings as a cushion against the unexpected. |
Should You Use A Mortgage Broker?
When searching for a great mortgage provider, you might approach lenders directly, use a mortgage comparison service, or work through a mortgage broker. Each route has its pros and cons.
Importantly, you should be aware of the difference between ‘whole of market’, ‘limited panel’, and ‘limited advice’:
- Should you approach a lender directly, they can only offer limited advice on their own mortgage products – and they earn money selling their financial products.
- Most comparison websites only compare the products of a limited panel of mortgage providers – those from whom they earn a commission when you apply for/are accepted for a mortgage.
- Different brokers offer various levels of advice. Some use the limited panel model, while others source mortgages from the whole of the market.
Taking on a mortgage is a significant financial decision, and it’s often best to seek professional advice from a mortgage broker. However, you should make sure that you know how they operate (whole of market or limited advice), and if they specialise in advising the type of mortgagor you are.
If you’re confident with mortgages, you could decide to go direct to lenders, cutting out the intermediary and, potentially, saving some money in the process. Our list of the best mortgage lenders in this article is a great starting point to find the best mortgage provider and best mortgage for you.