The mortgage market is now super-charged, as lenders scramble for customers by pushing down rates to record lows.
Homebuyers now have on average 21 days to apply for their preferred mortgage before the rate is cut to create a new deal, according to the data company Moneyfacts.
That is nine days fewer than last month, as the market becomes more fast-paced. These deals’ shelf lives are the lowest since May 2017 and the joint lowest ever recorded by the analyst.
Lenders are competing to attract customers after a drop in demand since the stamp duty holiday was tapered in July. It means banks and building societies are frequently dropping interest rates and relaxing criteria in a bid to entice borrowers.
The number of mortgages on the market has risen over the past 10 months and there are now 4,660 deals available, the most since March 2020. With so much choice, how can borrowers choose the best deal?
Enlist the help of a broker
The ongoing rate war between lenders shaved 0.03 percentage points from the average two and five-year fixed rates in August, which now sit at 2.52pc and 2.75pc respectively.
The fall followed a flurry of sub-1pc deals launched this summer, with high street lender Halifax recently cutting its rates twice in as many weeks. While these deals have targeted those borrowers with large deposits, lenders have also lowered rates in the traditionally more risky markets, such as for first-time buyers.
Ashley Thomas, of broker Magni Finance, said: “The larger the mortgage, the more important it is to get the best option as the difference in cost can be considerable.
“For example, a £1m mortgage will cost around £3,692 per month on the lowest rate on the market over a 25-year term. If the rate is 1pc higher it would increase to around £4,156 per month.”
What happens if you are tempted by another deal?
Once a mortgage application is submitted it usually takes around two to four weeks to get an offer and the interest rate is secured until it expires. But if rates are reduced before a borrower completes their purchase, they may be tempted to find a better deal.
Mr Thomas said: “If you want to change the rate before the mortgage offer has expired with the same lender, it is normally a case of just switching the product with no further checks.
“But if you change once the mortgage offer has expired, it will definitely ask for updated documents and will run a new credit search.
“It will also re-assess the case, therefore it is important that your situation hasn’t changed. I have had cases where the mortgage offer expired and when the lender has re-run the credit search, it has declined as their circumstances have changed.”
The process is further complicated if a borrower wants to take advantage of a low rate being offered by a different lender. This will also require a new application, another credit search and full underwriting review.
“Unless the rate is significantly lower, I would be cautious on starting the process again with another lender, especially if you are close to exchange or completion,” Mr Thomas added.
Some borrowers have benefitted from waiting until rates drop even further. Experts have predicted prices will continue to fall in the coming months and two-year rates could drop as low as 0.75pc.
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