How to compare mortgage lenders

Most mortgage comparison goes wrong in the same way: two rates are put side by side and the lower one wins. Rates are the most visible difference between lenders and often not the largest one.

Compare the total cost over the period you will actually hold it

A mortgage has a rate, an arrangement or origination fee, a valuation fee, legal costs, and sometimes a charge for leaving early. A lender can reduce any one of these and recover it through another.

The useful comparison is what the whole thing costs over the period you expect to keep the deal — often the length of an initial fixed period rather than the full term. A slightly higher rate with no arrangement fee frequently beats a headline rate carrying a large one, particularly on smaller balances where the fee is spread across less borrowing.

Ask each lender for the total cost over the initial period, including fees, in currency. If a lender will not produce that figure, that is information too.

Understand what the rate is attached to

Fixed means the rate does not change for an agreed period. You are buying certainty, and you usually pay a little for it.

Variable moves. Some variable rates track a published benchmark by a stated margin; others are set at the lender's discretion. Those are very different products wearing similar labels — the first changes when the benchmark does, the second changes when the lender decides. Ask which you are being offered.

Early repayment charges decide more than people expect

If you might move, overpay substantially, or refinance within the deal period, the exit cost matters more than the rate.

Ask what it would cost to repay in full in each year of the deal, and whether there is an annual overpayment allowance that is free of charge. Ten per cent a year is common, but it is not universal and it is not always what it sounds like.

Service differences are real and hard to see in advance

Lenders differ in how long they take to make a decision, how much documentation they want, whether they will lend on a particular kind of property, and how they handle a case that is not straightforward — self-employment, variable income, a short lease, a non-standard construction.

If your circumstances are anything other than ordinary, a lender that says yes slowly is worth more than one that says no quickly. This is where customer reviews are genuinely informative in a way that a rate table is not: people write about how a lender behaved when something went wrong.

Broker or direct

A broker can see products you cannot approach directly and may know which lenders are comfortable with your circumstances. Ask how they are paid — by you, by the lender, or both — and whether they search the whole market or a panel.

Going direct removes a fee but also removes that knowledge. Neither is the right answer for everybody.

What to have in writing before you commit

• The rate, and whether it is fixed or variable, and for how long
• Every fee, itemised, and whether it can be added to the loan
• The total cost over the initial period
• The early repayment charge for each year
• The overpayment allowance
• What happens at the end of the deal period

A note on affordability

The amount a lender will offer and the amount that is comfortable to repay are different numbers, and only one of them is calculated by the lender. Work out what the payment would be at a rate two or three percentage points higher than the one you are offered, and decide whether that is a payment you would still be able to make.

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This guide explains how mortgage products differ. It is not financial advice and it does not recommend any lender listed in this directory. Rates, fees and terms change; confirm everything with the lender before you decide.