Small mortgages

When it comes to the mortgage market small is definitely not beautiful. This is because most lenders, knowing they can’t make much profit out of borrowers with small sized loans, exclude them from their best buy deals.
James Cotton, a fee-free broker London & Country Mortgages in Bath, Somerset, says most lenders have a minimum loan cut-off at £25,000 for new business, although he points out that Nationwide building society and Abbey will go below this.

But for the tens of thousands of borrowers who do have smaller mortgages in the region of £25,000 to £50,000, it is still important to seek out good value and keep monthly repayments to a minimum.

‘Unfortunately for borrowers with very small mortgages, many of the best buy deals you see in mortgage league tables have minimum loan restrictions,’ says Cotton. ‘For example, some of the premium rates offered from Cheltenham and Gloucester have a minimum loan size of £100,000.’

But Cotton says all is not lost for borrowers with small loans: ‘Although you might not be able to save as much as you could if you had a six-figure mortgage,’ he says, ‘it is often still worth getting a new deal rather than sitting on your lender’s high standard variable rate for the remaining term of your loan. For example, cutting just 1% off your rate can save £250 on a 25,000 interest only mortgage in one year.’

Many lenders offer deals with competitive rates for the whole term of a mortgage and many of these have low or no set up costs. For smaller mortgages this is probably preferable to taking out a short-term deal, such as a two or five-year fixed rate, because these sorts of deals typically come with high set up costs.

When it comes to small mortgages it is these arrangement fees and charges that really impact on the overall value of a mortgage deal, rather than the headline interest rate.