Homeowners risk costly mistakes by arranging their own mortgage without fully understanding the small print, a mortgage adviser has warned. Comparison sites and banking apps have made searching for mortgage deals easier than ever, potentially encouraging borrowers to believe that finding the right product is simply a matter of choosing the lowest interest rate.
Michelle Lawson, director of Fareham-based Lawson Financial, said mortgages were increasingly complicated and the cheapest-looking deal wasn't necessarily right for a borrower's circumstances.
Why the cheapest rate isn't always the best
Lawson said: "It's not just about us finding the best rate. It's about knowing the process inside and out and being able to spot a problem before it's a problem, or knowing how to deal with a problem when push comes to shove. We can steer people to make sure they're asking the right questions of the agent, that they're doing the right things at the right time and making the right decisions."
One potential danger is choosing the wrong length of fixed-rate mortgage. A five-year fix may look attractive to someone wanting certainty, but people's circumstances can change. Lawson recently spoke to clients considering a five-year fix. After discussing their children and the possibility they might move for school, they decided a three-year deal better suited their future plans.
Hidden penalties and overlooked fees
Another trap is misunderstanding what happens when moving home with an existing mortgage. Lawson recalled a client who planned to port their mortgage, but didn't realise doing so still involved making a new mortgage application.
In another case, borrowers had been put onto a fixed-rate mortgage despite planning to move and subsequently faced potential penalties of around £9,000. Lawson helped challenge the situation and the lender eventually waived the charges after evidence showed the customers had previously explained their intention to move.
Borrowers can also become overly focused on headline interest rates. A product offering a lower rate may come with a larger arrangement fee, and borrowers who add that fee to their mortgage could end up paying interest on it.
Advice remains key as technology advances
Lawson said: "People are conditioned now to go for the cheapest, which isn't always best. Everything's got a purpose of sorts, but it's finding the right thing for the purpose."
She added: "Unless your friends are carbon copies of you, then you can't do the same because your thoughts, your background and your future are all going to be completely different. Just because Jonny down the pub's got a two-year fix, it doesn't mean that a two-year fix is going to be right for you as an individual."
Lawson believes technology will increasingly allow people with straightforward circumstances to arrange mortgages themselves, but said there remained an important role for advice as borrowers' finances become more complicated. For consumers, her message is that a mortgage should be judged on far more than the rate advertised at the top of a comparison table. The right mortgage needs to fit not only what a borrower can afford today, but what foreseeable changes or plans that could impact their decisions that they may not have considered lay ahead.
